AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998
REGISTRATION NO. 333-50449
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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METALS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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<S> <C> <C>
DELAWARE 5051 76-0533626
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 600
HOUSTON, TEXAS 77056
(713) 965-0990
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
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COPIES TO:
WILLIAM D. GUTERMUTH JOHN A. HAGEMAN
BRACEWELL & PATTERSON, L.L.P. METALS USA, INC.
SOUTH TOWER PENNZOIL PLACE THREE RIVERWAY
711 LOUISIANA STREET, SUITE 2900 SUITE 600
HOUSTON, TEXAS 77002-2781 HOUSTON, TEXAS 77056
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
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SUBJECT TO COMPLETION, DATED JULY 21, 1998.
10,000,000 SHARES
[LOGO]
METALS USA
COMMON STOCK
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus covers 10,000,000 shares of common stock, $.01 par value
(the "Common Stock"), which may be offered and issued by Metals USA, Inc. (the
"Company" or "Metals") from time to time in connection with merger or
acquisition transactions entered into by the Company. The shares covered by this
registration statement may also be issued in connection with the conversion of
securities issued in connection with such transactions which by their terms are
convertible into Common Stock. It is expected that the terms of acquisitions
involving the issuance of securities covered by this Prospectus will be
determined by direct negotiations with the owners or controlling persons of the
businesses or assets to be merged with or acquired by the Company, and that the
shares of Common Stock issued will be valued at prices reasonably related to the
market prices of Common Stock either at the time the terms of a merger or
acquisition are agreed upon or at or about the time shares are delivered. No
underwriting discounts or commissions will be paid, although finder's fees may
be paid from time to time with respect to specific mergers or acquisitions. Any
person receiving any such fees may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Company currently has 37,908,686 shares of its Common Stock listed on
The New York Stock Exchange (Symbol: "MUI"), of which 20,506,464 are
registered and available for unrestricted trading in the public markets unless
owned by affiliates of the Company. Application will be made to list the shares
of Common Stock offered hereby on The New York Stock Exchange. On July 20, 1998,
the closing price of the Common Stock on The New York Stock Exchange was $17.625
per share as published in THE WALL STREET JOURNAL on July 21, 1998. The Company
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission").
All expenses of this offering will be paid by the Company. The executive
offices of the Company are located at Three Riverway, Suite 600, Houston, Texas
77056, and its telephone number is (713) 965-0990.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BEFORE ACQUIRING THE COMMON STOCK OFFERED
HEREBY.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
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THE DATE OF THIS PROSPECTUS IS ______________, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy and information statements
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
site on the World Wide Web (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-4 (Reg. No. 333-50449), including any amendments thereto, under the Securities
Act, with respect to the shares of Common Stock offered hereby (the
"Registration Statement"). This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as a part thereof. Statements made in this Prospectus as to
the contents of any contract of any other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement.
Each such statement is qualified in all respects by reference to such exhibit.
The Registration Statement, including exhibits and schedules thereto, is on file
at the offices of the Commission and the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following materials previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference as of their
respective dates: (i) the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997; (ii) the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998; (iii) the Company's Definitive Proxy
Materials in accordance with Schedule 14A dated April 21, 1998; (iv) the
Company's Current Report on Form 8-K, dated July 7, 1998; (v) the description of
the Common Stock contained in the Company's Registration Statement on Form 8-A
filed on June 23, 1997 and (vi) the combined balance sheets of Texas Aluminum
Industries, Inc. and the affiliated Cornerstone Companies ("Texas
Aluminum/Cornerstone") as of June 30, 1995 and December 31, 1996, and the
related combined statements of income, stockholders' equity and members' equity
and cash flows for the years ended June 30, 1994 and 1995 and December 31, 1996
and for the period from January 1, 1997 through July 10, 1997; the combined
balance sheets of Interstate Steel Supply Co. and Affiliates ("Interstate") as
of December 31, 1995 and 1996, and the related combined statements of
operations, stockholders' equity and partners' capital and cash flows for each
of the three years in the period ended December 31, 1996 and for the period from
January 1, 1997 through July 10, 1997; the balance sheets of Queensboro Steel
Corporation ("Queensboro") as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996 and for the period from January 1,
1997 through July 10, 1997; the balance sheets of Affiliated Metals Company
("Affiliated") as of September 2, 1995 and August 31, 1996, and the related
statements of operations, stockholders' equity and cash flows for the fifty-two
weeks ended September 3, 1994, September 2, 1995 and August 31, 1996 and for the
period from September 1, 1996 through July 10, 1997; the balance sheets of
Southern Alloy of America, Inc. ("Southern Alloy") as of December 31, 1995 and
1996, and the related statements of operations, stockholders' equity and cash
flows for the years then ended and for the period from January 1, 1997 through
July 10, 1997; the balance sheet of Uni-Steel, Inc. ("Uni-Steel") as of
September 30, 1996, and the related statements of income, stockholders' equity
and cash flows for the year ended September 30, 1996 and for the period from
October 1, 1996 through July 10, 1997; the consolidated balance sheet of Harvey
Titanium, Ltd. and Subsidiary ("Harvey") as of June 30, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended; the consolidated balance sheets of Independent Metals Co.,
Inc. and subsidiary ("Independent") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years then ended; the consolidated balance sheets of
Pacific Metal Company and Subsidiary
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<PAGE>
("Pacific") as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended; the consolidated balance sheets of Fullerton Industries, Inc. and
Subsidiary ("Fullerton") as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended and the balance sheets of The Levinson Steel Company
("Levinson") as of December 31, 1997 and 1996, and the related statements of
income, stockholders' equity and cash flows for the years then ended, all of
which are included in the Company's Registration Statement on Form S-4,
Amendment No. 1 (Registration No. 333-49823), filed with the Commission on July
7, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c) 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the securities offered hereby, shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such documents. Any statement contained in this Prospectus, in
a supplement to this Prospectus or in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed supplement to this Prospectus or in any document that also is
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into the documents that this Prospectus incorporates).
Requests for such copies should be directed to Metals USA, Inc., Investor
Relations Department, Three Riverway, Suite 600, Houston, Texas 77056, telephone
(713) 965-0990.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT THE COMPANY THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. THIS
INFORMATION IS AVAILABLE WITHOUT CHARGE UPON REQUEST AT THE COMPANY'S ADDRESS
AND TELEPHONE NUMBER GIVEN ABOVE. IN ORDER TO ENSURE TIMELY DELIVERY OF THIS
INFORMATION, ANY REQUEST SHOULD BE MADE NO LATER THAN FIVE BUSINESS DAYS BEFORE
THE DATE ON WHICH THE FINAL INVESTMENT DECISION MUST BE MADE.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains certain statements that are "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Those statements include, among other things, the
discussions of the Company's business strategy and expectations concerning
market position, future operations, margins, profitability, liquidity and
capital resources, as well as statements concerning the integration of the
operations of businesses and assets that have been acquired by the Company and
the achievement of financial benefits and operational efficiencies in connection
therewith. Although the Company believes that the expectations reflected in such
Forward Looking Statements are reasonable, they can give no assurance that such
expectations will prove to be correct. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, number of acquisitions and projected
or anticipated benefits from acquisitions made by or to be made by the Company,
or projections involving anticipated revenues, expenses, earnings, levels of
capital expenditures or other aspects of operating results and financial
conditions. All phases of the operations of the Company are subject to a number
of uncertainties, risks and other influences, many of which are outside the
control of the Company and any one of which, or a combination of which, could
materially affect the results of the Company's operations and whether the
Forward Looking Statements made by the Company ultimately prove to be accurate.
Importants factors that could cause actual results to differ materially from the
Company's expectations are disclosed in "Risk Factors."
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
CONTAINED OR INCORPORATED BY REFERENCE HEREIN. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE INFORMATION SET FORTH UNDER THE CAPTIONS "RISK
FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS PROSPECTUS. ACTUAL EVENTS OR
RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING, WITHOUT LIMITATION, THE
RISK FACTORS SET FORTH HEREIN AND THE MATTERS SET FORTH IN THIS PROSPECTUS
GENERALLY. UNLESS OTHERWISE INDICATED, "METALS USA" MEANS METALS USA, INC.
PRIOR TO THE IPO (AS DEFINED BELOW), AND THE "COMPANY" MEANS METALS USA AND
ALL OF ITS SUBSIDIARIES. ADDITIONALLY, THE TERM "ACQUIRED COMPANIES," AS USED
HEREIN, REFERS TO EACH COMPANY ACQUIRED IN CONNECTION WITH THE IPO AND
THEREAFTER. CERTAIN INFORMATION REGARDING THE ACQUIRED COMPANIES, INCLUDING THE
DEFINED TERMS USED TO REFER TO THE INDIVIDUAL ACQUIRED COMPANIES, APPEARS UNDER
THE CAPTION "BUSINESS -- ACQUIRED COMPANIES."
THE COMPANY
Metals USA was founded in 1996 to become a leading national value-added
metals processor/service center, to manufacture higher-value components from
processed metals and to pursue actively the consolidation of the highly
fragmented metals processing industry. On July 11, 1997, Metals USA acquired in
separate concurrent transactions eight companies (the "Founding Companies")
engaged principally in the value-added metals processing business and
consummated its initial public offering (the "IPO"). Subsequent to the IPO and
through the date of this Prospectus, the Company has acquired a number of
companies in the metals processing industry collectively referred to as the
"Subsequent Acquisitions," in continuation of its consolidation strategy. On
average, the Acquired Companies have been in business for over 40 years. See
"Business -- Acquired Companies" for a description of the Acquired Companies
and the associated individual defined terms. The Company engages in the
preproduction processing of steel, aluminum and specialty metals and intends to
continue to capitalize on the trend occurring among both primary metals
producers and end-users of metals products to reduce in-house processing and
outsource processing and inventory management requirements. For the twelve
months ended December 31, 1997, the Company had pro forma net sales and net
income of $1,602.6 million and $34.0 million, respectively and for the three
months ended March 31, 1998, the Company had pro forma net sales and net income
of $451.0 million and $13.7 million, respectively.
The Company sells to over 30,000 customers in industries such as aerospace,
furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment.
The Company purchases metals from primary producers, maintains an inventory of
various metals to allow rapid fulfillment of customer orders and performs
customized processing services to the specifications provided by end-users in
order to reduce its customers' overall cost of manufactured metal products. In
addition to its metals processing capabilities, the Company manufactures
higher-value components from processed metals, such as finished building
products, and produces a number of finished components machined from specialty
metals.
The Company believes it has successfully established itself as a leading
consolidator in the metals processor/service center industry and has significant
opportunities for growth due to its (i) wide array of products and services;
(ii) broad and diversified customer base; (iii) geographic diversification; and
(iv) successful track record of identifying and consummating accretive
acquisitions. The Company believes these competitive strengths will allow it to
further build upon its consolidation strategy as well as reduce its
susceptibility to economic fluctuations affecting any one industry or geographic
area.
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INDUSTRY
The Company believes that the metals processor/service center industry in
the United States currently has over 3,500 participants generating over $75
billion in annual revenues and is undergoing consolidation. Growth in the metal
service center industry has been driven by trends occurring among both primary
metals producers and end-users of processed metals. In order to remain
competitive, primary metals producers are focusing on their core competencies of
high-volume production of a limited number of standardized metal products, and
are limiting or eliminating their processing services. At the same time,
customers are increasingly outsourcing their metals processing and inventory
management requirements as they focus on their core competencies and reduce
material costs, decrease capital required for raw materials inventory and
processing equipment and save time, labor and other expenses. Additionally,
customers are seeking to reduce complexity and costs by limiting the number of
processors/service centers with whom they do business, often eliminating those
suppliers offering limited ranges of products and services.
To date, the primary acquirors in the metals processor/service center
industry have been a few large metals service center companies that have
acquired businesses on a service center-by-service center basis. Following an
acquisition, these acquirors typically install their operating systems,
procedures and management and eliminate the acquired service center's separate
identity, thereby effectively converting the business into a branch office. The
Company believes that the sale of well-established businesses to these acquirors
is not an attractive alternative for many owners, particularly those who do not
wish to retire from the business. The Company, therefore, believes that
significant acquisition opportunities exist for a well-capitalized, national
value-added metals processor/service center that employs a decentralized
operating strategy and preserves the identity of the acquired businesses. The
Company believes that this operating strategy and the highly-fragmented nature
of the metals industry should allow it to enhance its leadership in the
industry's consolidation.
BUSINESS STRATEGY
Key elements of the Company's strategy are:
o GROW THROUGH ADDITIONAL ACQUISITIONS. The Company intends to continue
to grow through its acquisition program, the key elements of which are: to enter
new geographic markets, to expand within existing geographic markets and to
enter complementary processing and service markets. The Company believes that
there continue to be significant opportunities to expand through acquisitions in
geographic markets where the Company does not currently have a strong presence
by acquiring companies that are leaders in their regional markets. The Company
also plans to improve its market share in existing geographic markets by
pursuing "tuck-in" acquisitions as well as acquisitions of companies that
expand its range of products and services.
o OPERATE ON A DECENTRALIZED BASIS. The Company manages its existing
operations and intends to manage subsequently acquired companies on a
decentralized basis, with local management retaining responsibility for
day-to-day operations, profitability and growth of the business and the
flexibility to capitalize on the considerable regional market knowledge, name
recognition and customer relationships.
o GROW INTERNAL SALES. A key component of the Company's strategy is to
accelerate internal sales growth of its subsidiaries and at each subsequently
acquired business. The key elements of this internal growth strategy are: to
expand products and services to existing customers and to add new customers. The
Company believes that there are significant opportunities to accelerate internal
growth by making capital investments in areas such as inventory management,
logistics systems and processing equipment, thereby expanding the range of
processes and services offered by the Company. The Company is in the process of
implementing a Company-wide marketing program which will utilize professional
marketing sources and adopting "best-practices" among its subsidiaries to
demonstrate to the numerous customers not currently
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served by the Company that they could reduce their production costs by taking
advantage of the Company's processing, inventory management and other services.
o IMPROVE OPERATING MARGINS. The Company believes that the combination
of the acquired businesses provide significant opportunities to realize
purchasing economies and increase the Company's profitability. The key
components of this strategy are: to increase operating efficiencies and to
centralize appropriate administrative functions. The Company uses its increased
purchasing power to gain volume discounts and to develop more effective
inventory management systems. The Company expects measureable cost savings in
such areas as vehicle leasing and maintenance, information systems and other
purchases. The Company also believes there are significant opportunities to
improve operating margins by consolidating administrative functions such as
financing, insurance and employee benefits.
RECENT DEVELOPMENTS
On February 11, 1998, the Company completed the sale of $200 million
aggregate principal amount of the Company's 8 5/8% Senior Subordinated Notes due
2008 (the "Notes"). The Notes mature on February 15, 2008 and bear interest at
the rate of 8 5/8% per annum. Interest on the Notes is payable semiannually on
February 15 and August 15 of each year, commencing August 15, 1998. The Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after February 15, 2003, at the redemption prices set forth in the indenture
together with accrued and unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time on or prior to February 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net proceeds of one or more offerings of the Common
Stock of the Company, at a redemption price equal to 108.625% of the principal
amount thereof, plus accrued and unpaid interest to the date of such redemption;
provided that at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after such redemption.
Additionally, the Company completed an extension and modification of its
revolving credit facility on February 11, 1998. The credit facility provides for
up to $300.0 million of borrowings, matures February 2003 and is secured by the
pledge of all of the capital stock of the Company's material subsidiaries (the
"Credit Facility"). The Credit Facility will be used to make acquisitions,
make capital expenditures, refinance the debt of acquired companies and for the
Company's general working capital requirements. The Company used approximately
$179.3 million of the net proceeds ($194.5 million before expected expenses of
$0.8 million) it received from the sale of the Notes to repay the outstanding
borrowings under the Credit Facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness of the Company,
including indebtedness under the Credit Facility (as amended and restated), and
ranks PARI PASSU or senior in right of payment to any future subordinated
indebtedness of the Company. The Notes are unconditionally guaranteed on a
senior subordinated unsecured basis by each of the Company's subsidiaries. The
indenture governing the Notes (the "Indenture") permits the Company to incur
additional indebtedness, including senior indebtedness, subject to certain
limitations. On July 7, 1998, the Company filed Amendment No. 1 to its
Registration Statement on Form S-4 (No. 333-49823), for the benefit of all
holders of the Notes, relating to an exchange offer for the Notes under the
Securities Act of 1933, as amended. The Company expects the exchange offer will
be completed in August 1998.
On March 23, 1998, the Company announced that it agreed to make an offer
for all of the issued and outstanding common shares of Ideal Metal Inc.
("Ideal") at a cash price of CAN$5.25 per share. Another company made a
competing offer and on April 28, 1998, the Company received the agreed upon
compensatory fee of U.S.$1.7 million (CAN$2.5 million) from Ideal as a result of
the competing offer.
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Subsequent to March 31, 1998, the Company acquired the following metal
processing companies: Industrial Metals, Inc. ("Industrial"), Sierra Pacific
Steel, Inc. ("Sierra"), Fullerton Industries, Inc. ("Fullerton"), Faitoute
Steel Company, Inc. ("Faitoute"), Steel Manufacturing and Warehouse Company
("Steel Manufacturing"), Wilkof-Morris Steel Corporation ("Wilkof"), Forest
Manufacturing, Inc. ("Forest"), LaserPro Inc. ("LaserPro"), Aluminum
Building Systems, Inc. ("ABS"), Valley Aluminum Co. ("Valley"), Flagg Steel
Co. ("Flagg"), GSBC, Inc. (dba Geneva Steel Blanking) ("Geneva"),
Professional Metals, Inc. ("Professional") and Intsel Southwest Limited
Partnership ("Intsel"). These acquisitions were accounted for using the
"purchase" method of accounting. Additionally, on May 29, 1998, the Company
consummated the acquisition of Krohn Steel Service Center, Inc. ("Krohn"),
which was accounted for using the "pooling-of-interests" method of accounting.
The aggregate consideration paid by the Company to acquire these companies was
approximately $151.2 million in cash, 3,480,950 shares of common stock and the
issuance of notes of approximately $3.7 million (excluding assumed indebtedness
of approximately $43.4 million).
On April 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission on Form S-1 No. 333-50449 (the "1998
Shelf Registration Statement") relating to the issuance of up to 10,000,000
shares of common stock to be issued in connection with future acquisitions. This
registration statement is the first post-effective amendment to the 1998 Shelf
Registration Statement, filed under cover of Form S-4.
The Company's executive offices are located at Three Riverway, Suite 600,
Houston, Texas 77056, and its telephone number is (713) 965-0990.
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. Metals USA was founded in 1996 but conducted no operations and
generated no net sales prior to July 11, 1997. The Acquired Companies were
operated as separate independent entities prior to their acquisition, and there
can be no assurance that the Company will be able to integrate the operations of
these businesses successfully or to institute the necessary systems and
procedures, including accounting and financial reporting systems, to manage the
combined enterprise on a profitable basis. The Company's management group has
been assembled only recently, and there can be no assurance that the management
group will be able to manage the combined entity effectively or to implement
successfully the Company's acquisition and internal growth operating strategies.
The pro forma historical financial results of the Acquired Companies cover
periods when the Acquired Companies and Metals USA were not under common control
or management and may not be indicative of the Company's future financial or
operating results. The inability of the Company to integrate the Acquired
Companies successfully would have a material adverse effect on the Company's
business, financial condition and results of operations and would make it
unlikely that the Company's acquisition program will be successful.
POSSIBLE IMPACT OF VARYING METAL PRICES. The principal raw materials used
by the Company are carbon steel, aluminum, stainless steel, copper, brass,
titanium and various special alloys and other metals. The metals industry as a
whole is cyclical, and at times pricing and availability of raw materials in the
metals industry can be volatile due to numerous factors beyond the control of
the Company, including general, domestic and international economic conditions,
labor costs, production levels, competition, import duties and tariffs and
currency exchange rates. This volatility can significantly affect the
availability and cost of raw materials for the Company, and may, therefore,
adversely affect the Company's net sales, operating margin and net income.
During the last five years, carbon steel prices for the Acquired Companies have
increased an average of 2.7% per year. Aluminum prices have declined
approximately 7% per year for the past two years. While the overall trend of
steel and aluminum prices has been relatively stable, prices have fluctuated
approximately 10% up or down during interim periods. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company's service centers maintain substantial inventories of metal to
accommodate the short lead times and just-in-time delivery requirements of its
customers. Accordingly, the Company purchases metal in an effort to maintain its
inventory at levels that it believes to be appropriate to satisfy the
anticipated needs of its customers based on information derived from customers,
market conditions, historic usage and industry research. The Company's
commitments for metal purchases are generally at prevailing market prices in
effect at the time the Company places its orders. The Company has no long-term,
fixed-price purchase contracts. During periods of rising raw materials pricing,
there can be no assurance the Company will be able to pass any portion of such
increases on to customers. When raw material prices decline, customer demands
for lower prices could result in lower sale prices and, as the Company uses
existing inventory, lower margins. Changing metal prices could adversely affect
the Company's operating margin and net income.
CYCLICALITY OF DEMAND. Many of the Company's products are sold to
industries that experience significant fluctuations in demand based on economic
conditions, energy prices, consumer demand and other factors beyond the control
of the Company. No assurance can be given that the Company will be able to
increase or maintain its level of sales in periods of economic stagnation or
downturn.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of additional value-added metals
processors/service centers and manufacturers. The Company expects to face
competition for acquisition candidates, which may limit the number of
acquisition
8
<PAGE>
opportunities and may lead to higher acquisition prices. There can be no
assurance that the Company will be able to identify, acquire or manage
profitably additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Further, acquisitions involve a number of
special risks, including failure of the acquired business to achieve expected
results, diversion of management's attention, failure to retain key personnel of
the acquired business and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the Acquired Companies or other subsequently
acquired businesses will achieve anticipated net sales and earnings.
RESTRICTIVE LOAN COVENANTS. The Credit Facility and the Indenture
governing the Notes contain numerous financial and operating covenants that
limit the discretion of the Company's management with respect to certain
business matters. These covenants place significant restrictions on, among other
things, the ability of the Company to incur additional indebtedness, to create
liens or other encumbrances, to make certain payments and investments, and to
sell or otherwise dispose of assets and merge or consolidate with other
entities. The Credit Facility will also require the Company to meet certain
financial ratios and tests. A failure to comply with the obligations contained
in the Credit Facility or the Indenture could result in an event of default
under either the Credit Facility or the Indenture which could result in
acceleration of the related debt and the acceleration of debt under other
instruments evidencing indebtedness that may contain cross-acceleration or
cross-default provisions.
RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for all or a substantial
portion of the consideration to be paid. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. The Company currently maintains a $300.0 million revolving Credit
Facility with a group of commercial banks. On a pro forma basis, after giving
effect to the issuance of the Notes and the acquisitions completed subsequent to
March 31, 1998, the Company would have had $80.7 million of borrowing
availability under the Credit Facility at March 31, 1998. As of July 21, 1998,
$39.6 million was available to the Company under the Credit Facility. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES. Key elements of
the Company's strategy are to improve the profitability of the Acquired
Companies and subsequently acquired businesses and to continue to expand the net
sales of the Acquired Companies and any subsequently acquired businesses.
Although the Company intends to seek to improve the profitability of the
Acquired Companies and any subsequently acquired businesses by various means,
including realizing overhead and purchasing efficiencies, there can be no
assurances that the Company will be able to do so. The Company's ability to
increase the net sales of the Acquired Companies and any subsequently acquired
businesses will be affected by various factors, including demand for metals,
pricing and availability of raw materials, the Company's ability to expand the
range of products and services offered by each Acquired Company and any
subsequently acquired businesses and the Company's ability to successfully enter
new markets. Many of these factors are beyond the control of the Company, and
there can be no assurance that the Company's strategies will be successful or
that it will be able to generate cash flow adequate for its operations and to
support internal growth. A key component of the Company's strategy is to operate
the Acquired Companies and subsequently acquired businesses on a decentralized
basis, with local management retaining responsibility for day-to-day operations,
profitability and the growth of the business. If proper overall business
controls are not implemented, this decentralized operating strategy could result
in inconsistent operating and financial practices at the Acquired Companies and
subsequently acquired businesses and the Company's overall profitability could
be adversely affected.
9
<PAGE>
COMPETITION. The Company is engaged in a highly-fragmented and competitive
industry. The Company competes with a large number of other value-added metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company and several of which are public
companies. The Company also competes to a lesser extent with primary metals
producers, who typically sell to very large customers requiring regular
shipments of large volumes of metals. The Company may also face competition for
acquisition candidates from those public companies that have acquired a number
of metals service center businesses during the past decade. Other smaller metals
processors/service centers may also seek acquisitions from time to time.
Increased competition could have a material adverse effect on the Company's net
sales and profitability.
REGULATION. The Company's operations are subject to a number of federal,
state and local regulations relating to the protection of the environment and to
workplace health and safety. In particular, the Company's operations are subject
to extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environment protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations primarily include
lubricants, cleaning solvents and hydrochloric acid used in its pickling
operations at two facilities.
Some of the properties owned or leased by the Company are located in
industrial areas close to properties with histories of heavy industrial use,
three of which are on or near sites listed on the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") National Priority
List. The Company believes that as many as three of the properties leased by
Acquired Companies have been contaminated by pollutants which have migrated from
neighboring facilities or have been deposited by prior occupants.
Prior to entering into the agreements relating to the IPO and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired Companies and engaged an independent environmental consulting firm
to conduct or review assessments of environmental conditions at these
properties. Although no environmental claims have been made against the Company
and it has not been named as a potentially responsible party by the
Environmental Protection Agency or any other party, it is possible that the
Company could be identified by the Environmental Protection Agency, a state
agency or one or more third parties as a potentially responsible party under
CERCLA or under analogous state laws. If so, the Company could incur substantial
litigation costs to prove it is not responsible for the environmental damage.
The Company has obtained limited indemnities from the former stockholders of the
Acquired Companies whose facilities are located at the contaminated sites. The
Company believes that these indemnities will be adequate to protect it from a
material adverse effect on its financial condition should the Company be found
to be responsible for a share of the clean-up costs. The limited indemnities are
subject to certain deductible amounts, however, and there can be no assurance
that the limited indemnities will fully protect the Company.
RELIANCE ON KEY PERSONNEL. Due in part to the Company's decentralized
operating strategy, the Company is highly dependent on the continuing efforts of
its executive officers and the senior management of the Acquired Companies, and
the Company likely will depend on the senior management of any significant
business it acquires in the future. The business or prospects of the Company
could be affected adversely if any of these persons does not continue in his
management role until the Company is able to attract and retain qualified
replacements.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The Company's executive
officers and directors, former stockholders of the Acquired Companies and
entities affiliated with them beneficially own approximately 69.1% of the
outstanding shares of Common Stock. Holders of Restricted Common Stock are
entitled to elect one member of the Company's Board of Directors and 0.55 of one
vote for each share held on all other matters on which they are entitled to
vote. Holders of Restricted Common Stock are not entitled to vote on the
election of any other directors. Accordingly, the Company's executive officers,
directors and the former stockholders of the Acquired Companies control in the
aggregate approximately 70.5% of the votes of all shares of Common Stock, and if
acting in concert, will be able to exercise control over the
10
<PAGE>
Company's affairs, to elect the entire Board of Directors and to control the
outcome of any matter submitted to a vote of stockholders.
LIMITED PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to
the IPO, there was no public market for the Common Stock. The offering price for
the Common Stock to be issued pursuant to this Prospectus will be based upon the
Company's closing stock price at a date certain or the average closing stock
price over a period of time determined by negotiations between the Company and
the owners of the companies to be acquired. The negotiated price may bear no
relationship to the price at which the Common Stock will trade after the
respective acquisition and there can be no assurance that an active trading
market will be sustained subsequent to any future acquisition transactions. The
market price of the Common Stock may be subject to significant fluctuations in
response to numerous factors, including the timing of any acquisitions by the
Company, variations in the Company's annual or quarterly financial results or
those of its competitors, changes by financial research analysts in their
estimates of the future earnings of the Company, conditions in the economy in
general or in the Company's industry in particular, unfavorable publicity or
changes in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the metals industry. From time
to time, the stock market experiences significant price and volume volatility,
which may affect the market price of the Common Stock for reasons unrelated to
the Company's performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. There are currently 37,908,686 shares of Common Stock issued and
outstanding, of which 20,506,464 shares are freely tradeable (consisting of
6,785,000 shares sold in the IPO, 1,503,384 sold by certain former stockholders
in June 1998 and 12,218,080 shares issued in connection with certain of the
Subsequent Acquisitions). The remaining outstanding shares may be resold
publicly only following their registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption from
registration (such as provided by Rule 144 following a one year holding period
for previously unregistered shares). The holders of these remaining shares have
certain demand rights to have their shares registered in the future under the
Securities Act, but may not exercise such demand registration rights, and have
agreed with the Company that they will not sell, transfer or otherwise dispose
of any of their shares, for one year following the consummation of the IPO. The
Company has granted options to purchase up to a total of 3,644,022 shares of
Common Stock. The Company has filed a registration statement on Form S-8 for the
purpose of registering all the shares subject to these options under the
Securities Act for public resale. In addition, the 10,000,000 shares of Common
Stock issuable pursuant to this registration statement, of which 7,503,752
remain available for issuance, generally will be freely tradeable after their
issuance by persons not affiliated with the Company unless their resale is
contractually restricted. Sales, or the availability for sale of, substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market prices and the future ability of the Company to raise equity
capital and complete any additional acquisitions for Common Stock.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. Metals USA's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends and distributions and voting rights)
as the Board of Directors may determine. The issuance of this "blank-check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise. In addition, the Certificate of Incorporation provides for a
classified Board of Directors, which may also have the effect of inhibiting or
delaying a change in control of the Company. Certain provisions of the Delaware
General Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors.
11
<PAGE>
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following supplemental consolidated financial information should be
read in conjunction with the Audited and Unaudited Supplemental Consolidated
Financial Statements of Metals USA, Inc. and Subsidiaries and the applicable
Notes thereto included elsewhere in this Prospectus. The supplemental
consolidated financial information for the fiscal years ended 1993 through 1997
and the three months ended March 31, 1998 and 1997 reflects the historical
financial statements of Metals USA, restated for the effects of the business
combinations with Jeffreys, Wayne and Krohn, which were accounted for as
"poolings-of-interests," and the remaining Acquired Companies from their
respective acquisition dates.
The Acquired Companies operated as privately-owned entities prior to their
acquisition by Metals USA and their results of operations reflect varying tax
structures ("S Corporations" or "C Corporations") which have influenced the
level of owners' compensation. The owners of the Acquired Companies have
contractually agreed to certain reductions in both their compensation and
benefits and in certain cases lease payments for their respective facilities in
connection with the acquisitions. These cost savings, which are not reflected in
the consolidated financial information presented below, are reflected in the pro
forma information presented below and elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995(1) 1994(1) 1993(1)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Net sales.......................... $ 278.5 $ 72.0 $ 537.6 $ 265.5 $ 260.9 $ 235.7 $ 155.6
Cost of sales...................... 214.6 55.5 414.9 204.0 204.7 185.0 119.1
Operating and delivery............. 26.0 6.9 53.7 25.4 22.0 19.6 13.6
Selling, general and
administrative................... 18.1 7.2 41.1 21.4 15.6 14.0 10.5
Depreciation and amortization...... 3.0 .7 5.6 3.7 3.0 2.4 2.0
Operating income................... 16.8 1.7 22.3 11.0 15.6 14.7 10.4
Interest expense................... 4.8 .4 5.0 1.8 2.4 1.8 2.0
Other income....................... (.1) (.1) (.5) (.7) (.5) (.5) (1.5)
Income before income taxes......... 12.1 1.4 17.8 9.9 13.7 13.4 9.9
Net income (loss).................. 7.2 (.4) 7.5 4.5 8.1 8.2 6.3
Earnings per share................. $ .21 $ (.03) $ .33 $ .38 $ .86 $ .87 $ .67
Earnings per share--assuming
dilution......................... $ .21 $ (.03) $ .33 $ .38 $ .86 $ .87 $ .67
Number of common shares used in the
per share calculations:
Earnings per share............... 33.8 14.2 22.5 11.8 9.4 9.4 9.4
Earnings per share--assuming
dilution....................... 34.5 14.2 22.9 11.8 9.4 9.4 9.4
PRO FORMA STATEMENTS OF OPERATIONS
DATA(2):
Net sales.......................... $ 451.0 $ 1,602.6
Cost of sales...................... 345.7 1,242.9
Operating and delivery(3).......... 38.2 141.5
Selling, general and
administrative(3)................ 29.9 107.3
Depreciation and amortization(4)... 4.8 19.2
Operating income................... 32.4 91.7
Interest expense(5)................ 9.3 33.5
Other (income) expense............. .3 (2.1)
Income before income taxes......... 22.8 60.3
Net income......................... 13.7 34.0
Earnings per share................. $ .36 $ .90
Earnings per share--assuming
dilution......................... $ .35 $ .89
Number of common shares used in the
per share calculations:
Earnings per share............... 37.9 37.9
Earnings per share--assuming
dilution....................... 38.6 38.2
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
12
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998 YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
PRO FORMA(6) ACTUAL 1997 1996 1995 1994 1993
------------ ------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $380.0 $ 279.2 $ 193.0 $ 51.6 $ 53.2 $ 47.2 $ 39.7
Total assets....................... 947.9 670.2 480.6 107.3 100.1 99.0 70.5
Long-term debt, net of current
maturities....................... 462.4 273.2 167.1 24.6 31.4 23.2 21.3
Stockholders' equity............... 303.5 269.8 226.5 57.5 50.1 43.3 36.5
Dividends declared(7).............. -- -- -- -- -- -- --
</TABLE>
- ------------
(1) As a result of the merger with Metals USA, Jeffreys changed its fiscal year
to December 31 beginning January 1, 1996, to conform to the fiscal periods
of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1993, 1994 and 1995
have been included in the Company's consolidated financial statements for
the years ended December 31, 1993, 1994 and 1995.
(2) The pro forma statements of operations data assumes that the IPO, the
acquisition of the Founding Companies, the Subsequent Acquisitions and the
issuance of the Notes occurred on January 1, 1997 and is not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.
(3) The pro forma statements of operations data for the three months ended March
31, 1998 and for the year ended December 31, 1997 reflects (a) in selling,
general and administrative, an aggregate of approximately $.6 million and
$11.0 million, respectively, in pro forma reductions in salary, bonuses and
benefits to the owners of the Acquired Companies to which they have agreed
prospectively (the "Compensation Differential"), (b) in operating and
delivery, a $.2 million and $1.5 million, respectively, reduction in lease
expense pursuant to the renegotiation of certain leases (the "Rent
Differential"), and (c) in selling, general and administrative, a reduction
of $5.7 million for the year ended December 31, 1997 attributable to the
non-recurring portion of the non-cash compensation charge ("Compensation
Charge").
(4) Includes $.6 million and $4.7 million of additional amortization of goodwill
that would have been recorded as a result of the acquisition of the Founding
Companies and the Subsequent Acquisitions computed on the basis described in
Notes to the Unaudited Pro Forma Financial Statements for the three months
ended March 31, 1998 and for the year ended December 31, 1997, respectively.
(5) Includes reductions in interest expense of $.1 million and $1.5 million due
to assumed refinancing of outstanding indebtedness with the Company's Credit
Facility for the three months ended March 31, 1998 and for the year ended
December 31, 1997, respectively. Interest expense is increased for the three
months ended March 31, 1998 and for the year ended December 31, 1997 by $2.6
million and $12.9 million, respectively, due to the assumed financing of the
cash portion of the Acquired Companies' purchase price with the Company's
Credit Facility and by $.7 million and $5.4 million, respectively, due to
the issuance of the Notes.
(6) The pro forma balance sheet data assumes that the acquisitions of
Industrial, Sierra, Fullerton, Faitoute, Steel Manufacturing, Wilkof,
Forest, LaserPro, ABS, Valley, Flagg, Geneva, Professional and Intsel were
completed on March 31, 1998.
(7) Exclusive of pre-acquisition distributions from S Corporations.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Company's Audited and Unaudited Supplemental
Consolidated Financial Statements and related Notes thereto appearing elsewhere
in this Prospectus.
INTRODUCTION
The Company's net sales are derived from the processing of steel, aluminum
and other specialty metals and the use of processed metals to manufacture
high-value end-use products. Most of the metal sold by the Company is processed
by the Company. The Company processes various metals to specified thickness,
length, width, shape and surface quality pursuant to specific customer orders.
Additionally, certain of the Acquired Companies manufacture finished building
products for commercial and residential applications and machine certain
specialty metals.
The Company anticipates that it will realize savings from: (i) greater
volume discounts from raw materials and other suppliers and (ii) consolidation
of insurance and other general and administrative costs. It is anticipated that
the administrative cost savings will be offset by costs related to the Company's
new corporate management and by the costs attributable to being a public
company, at least until the Company's cost savings program can be fully
implemented. The Company's Unaudited Pro Forma Combined Statements of Operations
do not reflect any amounts as may be realized from future cost savings.
During 1996 and the first half of 1997, the Company sold an aggregate of
1,385,500 shares of Common Stock to management of and consultants to the Company
for $0.01 per share. Accordingly, the Company recorded a compensation charge of
$3.6 million in 1996 and $6.0 million in the first half of 1997 representing the
difference between the amount paid for the shares and the estimated fair value
of the shares on the date of sale, as if the Founding Companies were combined
(the "Compensation Charge").
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the "purchase" method of acquisition
accounting. Under SAB 97, the company receiving the largest voting position from
the shares issued in connection with the mergers must be designated as the
accounting acquiror. Accordingly, Metals USA was the designated "accounting
acquiror" and the Company recorded the excess of the fair value of the Merger
consideration paid (exclusive of debt assumed), over the fair value of the net
assets acquired with respect to the Founding Companies as "goodwill."
Collectively, the excess of consideration paid (exclusive of debt assumed) over
the fair value of the net assets acquired from the merger of the Founding
Companies together with the merger of certain of the Subsequent Acquisitions
that were accounted for using the "purchase" method of accounting, totaled
approximately $251.9 million, on a pro forma basis, at March 31, 1998. Generally
accepted accounting principles require the amortization of goodwill over its
useful life, not to exceed 40 years. The amortization of goodwill is a non-cash
charge to operating income. The pro forma impact of the amortization expense
attributable to the goodwill created from the application of SAB 97 with respect
to the Founding Companies is approximately $2.1 million per year and is not
deductible for income tax purposes. The pro forma impact of the amortization
expense attributable to the goodwill created from the Subsequent Acquisitions is
approximately $4.2 million per year, a portion of which is deductible for income
tax purposes.
The accounting classifications used by the Company to present the combined
results of operations for the Founding Companies and the Subsequent Acquisitions
generally conform to the conventions established by the Steel Service Center
Institute ("SSCI") and the National Association of Aluminum Distributors.
14
<PAGE>
Depreciation and amortization expenses are shown separately as management
believes certain investors find the information beneficial. Brief descriptions
of the classifications are as follows:
NET SALES. Net sales include sales of materials, processing and
fabrication, less sales returns, allowances and cash discounts. Net sales also
exclude any sales and use taxes collected.
COST OF SALES. Cost of sales include the cost of material and freight and
all processing services purchased from unaffiliated third parties, less any
applicable purchase discounts realized. The Company carries a substantial
quantity of raw material inventories and five of its Subsidiaries use the
last-in first-out ("LIFO") method of accounting. The LIFO method of accounting
generally matches current costs more closely with current sales. However,
variations in inventory quantities and/or prices may have a significant impact
on cost of sales.
OPERATING AND DELIVERY. Operating and delivery expenses consist of labor,
utilities, rent, repairs and maintenance expenses attributable to material
processing operations, warehouse facilities and delivery operations, including
the cost of freight attributable to product shipments.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses include the cost of personnel conducting sales and administrative
activities (including commissions and other forms of incentive compensation),
advertising and marketing expenses, rent, utilities, repairs and maintenance
costs for non-warehouse facilities, professional fees, property taxes and other
costs not included in the preceding classifications that are directly
attributable to operations.
RESULTS OF OPERATIONS
The following supplemental consolidated financial information reflects the
historical consolidated financial statements of Metals USA restated for the
effects of the business combinations with Jeffreys, Wayne and Krohn accounted
for as "poolings-of-interests" and the remaining Acquired Companies from their
respective acquisition dates.
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1998 % 1997 %
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT PERCENTAGES)
Net sales.......................... $ 278.5 100.0% $ 72.0 100.0%
Operating costs and expenses:
Cost of sales................. 214.6 77.1% 55.5 77.1%
Operating and delivery........ 26.0 9.3% 6.9 9.6%
Selling, general and
administrative.............. 18.1 6.5% 7.2 10.0%
Depreciation and amortization. 3.0 1.1% .7 .9%
--------- --------- --------- ---------
Operating income................... 16.8 6.0% 1.7 2.4%
Interest expense................... 4.8 1.7% .4 .6%
Other income....................... (.1) -- (.1) (.1%)
--------- --------- --------- ---------
Income before income taxes......... $ 12.1 4.3% $ 1.4 1.9%
========= ========= ========= =========
RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1997
NET SALES. Net sales increased $206.5 million, or 286.8%, from $72.0
million for the three months ended March 31, 1997 to $278.5 million for the
three months ended March 31, 1998. The increase in net sales was principally due
to acquisitions completed during 1997. The purchase acquisitions completed in
the first quarter of 1998 did not have a significant impact on net sales or
results of operations for the three months ended March 31, 1998.
COST OF SALES. Cost of sales increased $159.1 million, or 286.7%, from
$55.5 million for the three months ended March 31, 1997 to $214.6 million for
the three months ended March 31, 1998. The increase in cost of sales was
principally due to the acquisitions described above. As a percentage of net
sales, cost of sales was 77.1% for both periods.
15
<PAGE>
OPERATING AND DELIVERY. Operating and delivery expenses increased $19.1
million, or 276.8%, from $6.9 million for the three months ended March 31, 1997
to $26.0 million for the three months ended March 31, 1998. The increase in
operating and delivery expenses was principally due to the acquisitions
described above. As a percentage of net sales, operating and delivery expenses
decreased from 9.6% for the three months ended March 31, 1997 to 9.3% for the
three months ended March 31, 1998. This percentage decrease was primarily due to
spreading of fixed operating costs over a higher volume of net sales.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $10.9 million, or 151.4%, from $7.2 million for the three
months ended March 31, 1997 to $18.1 million for the three months ended March
31, 1998. This increase in selling, general and administrative expenses was
primarily attributable to the acquisitions described above and, to a lesser
extent, increased volumes of product shipments. As a percentage of net sales,
selling, general and administrative expenses decreased from 10.0% for the three
months ended March 31, 1997 to 6.5% for the three months ended March 31, 1998.
This percentage decrease was primarily due to the non-recurring non-cash
Compensation Charge of $2.8 million the Company incurred in connection with the
sale of common stock to consultants and members of management during the three
months ended March 31, 1997.
OPERATING INCOME. Operating income increased $15.1 million, from $1.7
million for the three months ended March 31, 1997 to $16.8 million for the three
months ended March 31, 1998. The increase in operating income was attributable
to the factors discussed above. As a percentage of net sales, operating income
increased from 2.4% for the three months ended March 31, 1997 to 6.0% for the
three months ended March 31, 1998. This percentage increase was primarily due to
the non-recurring non-cash Compensation Charge described above, partially offset
by higher cost of raw materials during the three months ended March 31, 1998.
INTEREST EXPENSE. Interest expense increased $4.4 million, from $.4
million for the three months ended March 31, 1997 to $4.8 million for the three
months ended March 31, 1998. The increase in interest expense was primarily due
to increased borrowings attributable to the debt assumed and the cash portion of
the purchase price paid in connection with the acquisitions completed by the
Company on July 11, 1997 and periods thereafter.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate principally due to state income taxes
(net of federal income tax benefit), the non-deductibility of the Compensation
Charge and the amortization of goodwill attributable to certain acquisitions.
16
<PAGE>
The following supplemental consolidated financial information reflects the
historical financial statements of Metals USA, restated for the effects of the
business combinations with Jeffreys, Wayne and Krohn accounted for as
"poolings-of-interests" and the remaining Acquired Companies from their
respective acquisition dates. Because of the merger with Metals USA, Jeffreys
changed its fiscal year end from July 31 to December 31, beginning January 1,
1996 to conform to the fiscal periods of Metals USA and the other Acquired
Companies. The historical financial information of Jeffreys for the year ended
July 31, 1995 has been included in the Company's consolidated financial
statements for the year ended December 31, 1995.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1997 % 1996 % 1995 %
--------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 537.6 100.0% $ 265.5 100.0% $ 260.9 100.0%
Operating costs and expenses:
Cost of sales................... 414.9 77.2% 204.0 76.8% 204.7 78.5%
Operating and delivery.......... 53.7 10.0% 25.4 9.6% 22.0 8.4%
Selling, general and
administrative................ 41.1 7.6% 21.4 8.1% 15.6 6.0%
Depreciation and amortization... 5.6 1.0% 3.7 1.4% 3.0 1.1%
--------- --------- --------- --------- --------- ---------
Operating income..................... 22.3 4.2% 11.0 4.1% 15.6 6.0%
Interest expense..................... 5.0 .9% 1.8 .7% 2.4 .9%
Other income......................... (.5) -- (.7) -- (.5) (.2)%
--------- --------- --------- --------- --------- ---------
Income before income taxes........... $ 17.8 3.3% $ 9.9 3.7% $ 13.7 5.3%
========= ========= ========= ========= ========= =========
</TABLE>
RESULTS FOR 1997 COMPARED TO 1996
NET SALES. Net sales increased $272.1 million, or 102.5%, from $265.5
million in 1996 to $537.6 million in 1997. The increase in net sales was
principally due to acquisitions of the Founding Companies on July 11, 1997 and
the purchase acquisitions of Harvey, Meier and Federal Bronze on September 26,
1997. Average realized prices for steel products declined approximately 3.2% in
1997 compared to 1996.
COST OF SALES. Cost of sales increased $210.9 million, or 103.4%, from
$204.0 million in 1996 to $414.9 million in 1997. The increase in cost of sales
was principally due to the business acquisitions described above. As a
percentage of net sales, cost of sales increased from 76.8% in 1996 to 77.2% in
1997. This percentage increase was due to higher cost of raw materials.
OPERATING AND DELIVERY. Operating and delivery expenses increased $28.3
million, or 111.4%, from $25.4 million in 1996 to $53.7 million in 1997. The
increase in operating and delivery expenses was principally due to the business
acquisitions described above. As a percentage of net sales, operating and
delivery expenses increased from 9.6% in 1996 to 10.0% in 1997. This percentage
increase was primarily due to higher transportation costs to support an
expanding market area.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $19.7 million, or 92.1%, from $21.4 million in 1996 to $41.1
million in 1997. This increase in selling, general and administrative expenses
was primarily attributable to the business acquisitions described above.
Additionally, the Company recorded a Compensation Charge of $3.6 million and
$6.0 million in 1996 and 1997, respectively. As a percentage of net sales,
selling, general and administrative expenses decreased from 8.1% in 1996 to 7.6%
in 1997. This percentage decrease was primarily due to the Compensation Charge
as a percentage of net sales being less for 1997 than for 1996. Excluding the
effect of the Compensation Charges recorded in 1996 and 1997, as a percentage of
net sales, selling, general and administrative expenses decreased from 6.7% in
1996 to 6.5% in 1997. This percentage decrease was primarily due to the
allocation of fixed costs over a higher volume of net sales.
OPERATING INCOME. Operating income increased $11.3 million, or 102.7%,
from $11.0 million in 1996 to $22.3 million in 1997. The increase in operating
income was primarily attributable to the business acquisitions described above,
offset by the $6.0 million Compensation Charge described in the preceding
paragraph. As a percentage of net sales, operating income increased from 4.1% in
1996 to 4.2% in 1997.
17
<PAGE>
INTEREST EXPENSE. Interest expense increased $3.2 million, or 177.8%, from
$1.8 million in 1996 to $5.0 million in 1997. The increase in interest expense
was due to increased borrowings in connection with the business acquisitions
described above.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate principally due to state income taxes
(net of federal income tax benefit), the non-deductibility of the Compensation
Charge and the amortization of goodwill attributable to certain acquisitions.
RESULTS FOR 1996 COMPARED TO 1995
NET SALES. Net sales increased $4.6 million, or 1.8%, from $260.9 million
in 1995 to $265.5 million in 1996. The increase in net sales was principally due
to a 6.0% increase in shipments in 1995 compared to 1996. Additionally, average
realized prices decreased by approximately 2.5%. Approximately one-third of the
increased shipments were from the Oakwood, Georgia facility acquired in March
1995.
COST OF SALES. Cost of sales decreased $.7 million, or .3%, from $204.7
million in 1995 to $204.0 million in 1996. The decrease in cost of sales was
primarily attributable to a 4.4% decline in the cost of raw materials, partially
offset by the increased shipments described above. As a percentage of net sales,
cost of sales decreased from 78.5% in 1995 to 76.8% in 1996 due primarily to the
decline in the cost of raw materials referred to above.
OPERATING AND DELIVERY. Operating and delivery expenses increased $3.4
million, or 15.5%, from $22.0 million in 1995 to $25.4 million in 1996. This
increase was primarily attributable to the increased shipments described above.
As a percentage of net sales, operating and delivery expenses increased from
8.4% in 1995 to 9.6% in 1996. This percentage increase was primarily due to
higher transportation costs to support an expanding market area.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $5.8 million, or 37.2%, from $15.6 million in 1995 to $21.4
million in 1996. The increase in selling, general and administrative expenses
was primarily due to a $3.6 million Compensation Charge recorded during 1996
and, to a lesser extent, the increased selling costs attributable to the
increased shipments described above. As a percentage of net sales, selling,
general and administrative expenses increased from 6.0% for 1995 to 8.1% for
1996. This percentage increase was primarily due to the Compensation Charge
described above.
OPERATING INCOME. Operating income decreased $4.6 million, or 29.5%, from
$15.6 million in 1995 to $11.0 million in 1996. The decrease in operating income
was primarily attributable to the compensation charge discussed above. As a
percentage of net sales, operating income decreased from 6.0% in 1995 to 4.1% in
1996.
INTEREST EXPENSE. Interest expense decreased $0.6 million, or 25.0%, from
$2.4 million in 1995 to $1.8 million in 1996. The decrease in interest expense
was primarily due to lower average balances outstanding under the revolving
credit facilities.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate principally due to state income taxes
(net of federal income tax benefit) and the non-deductibility of the
Compensation Charge.
LIQUIDITY AND CAPITAL RESOURCES
Beginning with the IPO on July 11, 1997, and through February 11, 1998, the
Company has completed a number of financing transactions designed to enhance the
Company's liquidity, reduce incremental interest expense and extend debt
maturities. The transactions included a public equity offering of Common Stock
which resulted in net proceeds of $58.3 million, a private offering for $200.0
million aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008
(the "Notes") and the establishment of a $300.0 million revolving credit
facility with a group of commercial banks (the "Credit Facility"). As of March
31, 1998, $249.1 million was available to the Company under the Credit Facility.
As of July 21, 1998, the Company had outstanding borrowings of $260.4 million
and $39.6 million available for use under the Credit Facility.
At March 31, 1998, the Company had cash of $11.9 million, working capital
of $279.2 million and total debt of $283.0 million. At December 31, 1997, the
Company had cash of $7.3 million, working capital
18
<PAGE>
of $193.0 million and total debt of $174.3 million (of which $144.8 million was
attributable to the Original Credit Facility, as defined below). At December 31,
1996, the Company had cash of $2.4 million, working capital of $51.6 million and
total debt of $27.8 million. The Company anticipates that its cash flow from
operations (excluding acquisition requirements) will be sufficient to meet the
Company's normal working capital and debt service requirements for at least the
next several years. The Company intends to retain all of its earnings, to
finance the expansion of its business and for general corporate purposes,
including future acquisitions, and does not anticipate paying any cash dividends
on its Common Stock for the next several years. In addition, the Company's
Credit Facility and the indenture governing the Notes (the "Indenture")
include restrictions on the ability of the Company to pay dividends.
The Company used $15.0 million in net cash for operating activities and
generated $6.2 million in net cash from operating activities for the three
months ended March 31, 1998 and 1997, respectively. The Company generated $3.3
million and $9.5 million in net cash from operating activities for 1997 and
1996, respectively. Net cash used for investing activities was $36.4 million and
$1.8 million for the three months ended March 31, 1998 and 1997, respectively.
The principal use of cash during the three months ended March 31, 1998 was to
fund the cash portion of the acquisition cost for the Subsequent Acquisitions.
Net cash used in investing activities was $85.9 million and $6.5 million for
1997 and 1996, respectively. The principal use of cash during 1997 was to fund
the cash portion of the acquisition cost for the Acquired Companies. Net cash
provided by financing activities was $56.0 million and net cash used in
financing activities was $2.0 million for the three months ended March 31, 1998
and 1997, respectively. Net cash provided by financing activities was $87.5
million for 1997 and net cash used in financing activities was $5.0 million in
1996. For the three months ended March 31, 1998, the cash provided by financing
activities consisted primarily of the net proceeds from the sale of the Notes of
$193.7 million offset by net repayments on the Credit Facility. For 1997, the
cash provided by financing activities consisted primarily of the net proceeds
from the sale of Common Stock of $58.3 million and borrowings under the initial
$150.0 million unsecured revolving credit facility (the "Original Credit
Facility").
INVESTING ACTIVITIES
Concurrent with the completion of the IPO, Metals USA acquired the Founding
Companies for $27.8 million in cash, 10,128,609 shares of common stock and
assumed approximately $92.6 million of existing indebtedness. Following the IPO,
the Company acquired a number of additional metal processing companies. These
acquisitions include Jeffreys, Wayne, Meier, Harvey, Independent, Royal, RJ
Fabricating, Federal Bronze, Pacific, National, Western, Mark Metals, Metalmart,
Levinson, Seaboard, Sierra, Industrial, Fullerton, Concord, Faitoute, Krohn,
Steel Manufacturing, Wilkof, Forest, LaserPro, ABS, Valley, Flagg, Geneva,
Professional and Intsel. The acquisitions of Jeffreys, Wayne and Krohn were
accounted for using the "pooling-of-interests" method of accounting. The
remaining acquisitions were accounted for using the "purchase" method of
accounting. Collectively, the Company paid a total of $235.9 million in cash and
issued 16,241,663 shares of Common Stock and $3.7 million of notes in connection
with these acquisitions. Additionally, the Company assumed approximately $141.0
million of existing indebtedness of these companies.
The Company intends to continue to actively pursue acquisition
opportunities. The Company expects to fund future acquisitions through the
issuance of additional Common Stock, borrowings, including use of amounts
available under the Credit Facility, and cash flow from operations. Capital
expenditures for equipment and expansion of facilities are expected to be funded
from cash flow from operations and supplemented as necessary by borrowings from
the Credit Facility or other sources of financing. To the extent the Company
funds a significant portion of the consideration for future acquisitions with
cash, it may have to increase the amount of the Credit Facility or obtain other
sources of financing.
On April 20, 1998, the Company filed the 1998 Shelf Registration Statement
relating to the issuance of up to 10,000,000 shares of Common Stock to be issued
in connection with future acquisitions.
FINANCING ACTIVITIES
In July 1997, the Company completed its IPO of 5,900,000 shares of Common
Stock for which it received net proceeds of approximately $50.1 million. The
Company used a portion of the Credit Facility together with the net proceeds
from the IPO to retire substantially all of the indebtedness of the Founding
19
<PAGE>
Companies. Additionally, on August 12, 1997, the Company sold 885,000 shares of
its Common Stock pursuant to the overallotment option granted to the
underwriters in connection with the IPO for net proceeds of $8.2 million. The
Company used the net proceeds from the exercise of the overallotment option to
repay borrowings on the Credit Facility and for other corporate purposes.
Concurrent with the IPO, the Company obtained the Original Credit Facility
which was used to fund acquisitions, refinance certain indebtedness of the
acquired companies and for general corporate and working capital requirements.
In January 1998, the Company obtained a $50.0 million Interim Credit Facility to
meet its acquisition related cash requirements pending the completion of an
extension and modification of the Original Credit Facility to provide for up to
$300.0 million of borrowing availability. The closing of the extension and
modification of the Credit Facility on February 11, 1998 stipulated the
termination of the Interim Credit Facility. The Credit Facility matures in
February 2003 and will be used to fund acquisitions, make capital expenditures,
refinance debt of the companies acquired and for general working capital
requirements. The Credit Facility requires the Company to comply with various
affirmative and negative covenants including: (i) the maintenance of certain
financial ratios, (ii) restrictions on additional indebtedness, (iii)
restrictions on liens, guarantees and dividends, (iv) obtaining the lenders'
consent with respect to certain individual acquisitions and (v) maintenance of a
specified level of consolidated net worth. Borrowings under the Credit Facility
are secured by the pledge of all of the capital stock of each of the Company's
material subsidiaries.
On February 11, 1998, the Company received $194.5 million of net cash
proceeds (before estimated expenses of $.8 million) from the sale of the Notes.
The Notes call for semi-annual interest payments on February 15 and August 15 of
each year, beginning August 15, 1998 and mature on February 15, 2008. The Notes
are guaranteed by substantially all of the Company's current and future
subsidiaries, and contain certain covenants restricting additional indebtedness,
liens, transactions with affiliates, asset sales, investments, payment
restrictions affecting subsidiaries and mergers and acquisitions of
subsidiaries. The Notes are subordinate to borrowings under the Credit Facility
and will rank PARI PASSU in right of payment with all other future subordinated
debt of the Company and will rank senior to other indebtedness that expressly
provides that it is subordinated in right of payment to the Notes. The Company
used $179.3 million of such proceeds to repay the borrowings outstanding under
the Original Credit Facility and Interim Credit Facility on February 11, 1998.
YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Specifically, computational
errors are a known risk with respect to dates after December 31, 1999. The
Company has addressed the issue with respect to its existing subsidiaries and
potential acquisitions as part of its normal due diligence procedures. The
Company does not believe the cost of achieving Year 2000 compliance, in excess
of the cost of normal software upgrades and replacements incurred through fiscal
1999, will be material to the Company's consolidated results of operations,
financial position or liquidity.
RECENT DEVELOPMENTS
On March 23, 1998, the Company announced that it agreed to make an offer
for all of the issued and outstanding common shares of Ideal Metal Inc.
("Ideal") at a cash price of CAN$5.25 per share. Another company made a
competing offer and on April 28, 1998, the Company received the agreed upon
compensatory fee of U.S.$1.7 million (CAN$2.5 million) from Ideal as a result of
the competing offer.
Subsequent to March 31, 1998, the Company acquired the following metal
processing companies: Industrial, Sierra, Fullerton, Faitoute, Steel
Manufacturing, Wilkof, Forest, LaserPro, ABS, Valley, Flagg, Geneva,
Professional and Intsel. These acquisitions were accounted for using the
"purchase" method of accounting. In addition, the Company completed the
acquisition of Krohn, which was accounted for using the "pooling-of-interests"
method of accounting. The aggregate consideration paid by the Company to acquire
these companies was approximately $151.2 million in cash, 3,480,950 shares of
common stock and the issuance of notes of approximately $3.7 million (excluding
assumed indebtedness of approximately $43.4 million).
20
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Partners and employees
of Bracewell & Patterson, L.L.P. own less than one percent of the Common Stock
of the Company.
EXPERTS
The financial statements of Metals USA, Affiliated, Interstate, Texas
Aluminum/Cornerstone, Queensboro, Uni-Steel, Southern Alloy, Independent and
Levinson, included in this Prospectus or incorporated herein by reference, to
the extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included in this Prospectus or
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports. The financial statements of Affiliated at August
31, 1996, and for the fifty-two weeks then ended, incorporated herein by
reference, have been audited by Ernst & Young LLP, independent auditors, and at
September 2, 1995, and for each of the two fifty-two week periods then ended, by
Rubin, Brown, Gornstein & Co. LLP, independent auditors, as set forth in their
respective reports thereon incorporated herein in by reference, and are included
in reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing. The financial statements of Queensboro, incorporated
herein by reference, have been audited by McGladrey & Pullen, LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said report. The financial statements of Harvey, incorporated
herein by reference, have been audited by Klein, Bogakos, and Robertson, CPA's,
Inc., independent auditors, as indicated in their report with respect thereto,
and are incorporated herein by reference in reliance upon the authority of said
firm as experts in giving said report. The consolidated financial statements of
Pacific, incorporated herein by reference, have been audited by Perkins &
Company, P.C., independent auditors, as indicated in their report with respect
thereto, and are incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said report. The consolidated financial
statements of Fullerton, incorporated herein by reference, have been audited by
Ernst & Young LLP, independent auditors, as indicated in their report with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of such firm as experts in accounting and auditing.
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
METALS USA, INC. UNAUDITED PRO FORMA
Introduction to Unaudited Pro
Forma Financial Statements..... F-2
Unaudited Pro Forma Balance
Sheet.......................... F-3
Unaudited Pro Forma Statement of
Operations for the twelve
months ended
December 31, 1997............. F-4
Unaudited Pro Forma Statement of
Operations for the three months
ended March 31, 1998........... F-5
Notes to Unaudited Pro Forma
Financial Statements........... F-6
METALS USA, INC. AND SUBSIDIARIES
Report of Independent Public
Accountants.................... F-9
Supplemental Consolidated
Balance Sheets................. F-10
Supplemental Consolidated
Statements of Operations....... F-11
Supplemental Consolidated
Statements of Cash Flows....... F-12
Supplemental Consolidated
Statements of Stockholders'
Equity......................... F-13
Notes to Supplemental
Consolidated Financial
Statements..................... F-14
METALS USA, INC. AND
SUBSIDIARIES -- UNAUDITED INTERIM
FINANCIAL STATEMENTS
Supplemental Consolidated
Balance Sheets at March 31,
1998 (Unaudited) and December
31, 1997....................... F-29
Unaudited Supplemental
Consolidated Statements of
Operations for the three months
ended March 31, 1998 and
1997........................... F-30
Unaudited Supplemental
Consolidated Statements of Cash
Flows for the three months
ended March 31, 1998 and
1997........................... F-31
Condensed Notes to Unaudited
Supplemental Consolidated
Financial Statements........... F-32
F-1
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma financial statements give effect to the
acquisitions by Metals USA, Inc. ("Metals USA") of the outstanding capital
stock of Affiliated, Interstate, Texas Aluminum/Cornerstone, Queensboro,
Southern Alloy, Uni-Steel, Service Systems and Williams (together, the
"Founding Companies") and the outstanding stock of Federal Bronze, Harvey,
Jeffreys, Meier, Wayne, Royal, RJ Fabricating, Independent, Pacific, Metalmart,
Mark Metals, Western, National, Sierra, Concord, Industrial, Levinson,
Fullerton, Faitoute, Krohn, Steel Manufacturing, Wilkof, Forest, LaserPro, ABS,
Valley, Flagg, Geneva, Professional and Intsel (together, the "Subsequent
Acquisitions" and together with the Founding Companies, the "Acquired
Companies"). The Founding Companies acquisitions occurred concurrently with the
consummation of Metals USA's initial public offering of 5,900,000 shares of its
Common Stock on July 11, 1997, and were accounted for using the "purchase"
method of accounting. On August 12, 1997, the Company sold 885,000 of its common
stock pursuant to an over allotment option with the underwriters. The sale by
the Company of the 6,785,000 shares of its Common Stock, together with the
Founding Companies acquisitions, is hereinafter referred to as the "IPO".
During the third and fourth quarters of 1997, acquisitions were completed which
included Federal Bronze, Harvey, Jeffreys, Meier, Wayne, Royal and RJ
Fabricating, with all except Jeffreys and Wayne accounted for using the
"purchase" method of accounting. During 1998, through July 21, 1998, Metals
USA completed acquisitions which included Independent, Pacific, Metalmart, Mark
Metals, Western, National, Sierra, Concord, Industrial, Levinson, Fullerton,
Faitoute, Steel Manufacturing, Wilkof, Forest, LaserPro, ABS, Valley, Flagg,
Geneva, Professional and Intsel, which were all accounted for using the
"purchase" method of accounting. In addition, Metals USA completed the
acquisition of Krohn in May 1998, which was accounted for using the
"pooling-of-interests" method of accounting.
The unaudited pro forma balance sheet gives effect to the acquisitions of
Sierra, Industrial, Fullerton, Faitoute, Steel Manufacturing, Wilkof, Forest,
LaserPro, ABS, Valley, Flagg, Geneva, Professional and Intsel as if they had
occurred on March 31, 1998. The unaudited pro forma statements of operations
give effect to the IPO, the acquisition of the Founding Companies, the
Subsequent Acquisitions and the issuance of the $200,000,000 aggregate principal
amount of 8 5/8% Senior Subordinated Notes due 2008 (the "Notes"), as if they
had occurred on January 1, 1997.
Metals USA has preliminarily analyzed the savings that it expects to be
realized from reductions in salaries and certain benefits to the owners and
reductions in lease cost resulting from renegotiations of certain leases. To the
extent the owners of the Acquired Companies have agreed prospectively to
reductions in salary, bonuses and benefits and the reduction in lease cost has
been confirmed by lease agreements, these reductions have been reflected in the
pro forma statement of operations. In addition, the Company has a five-year
revolving credit facility of $300.0 million (as amended, the "Credit
Facility"). Based on terms of the Credit Facility, the Company believes that
its interest expense will be reduced with respect to borrowings made under
revolving credit loans. This reduction in interest expense has been reflected in
the pro forma statement of operations, offset by increased interest expense with
respect to the Notes. It is anticipated that other potential cost savings will
be realized which will be offset by costs related to Metals USA's new corporate
management and by the costs associated with being a public company. However,
because these factors cannot be accurately quantified at this time, they have
not been included in the pro forma financial information of Metals USA.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what Metals
USA's financial position or results of operations would actually have been if
such transactions had in fact occurred on those dates and are not necessarily
representative of Metals USA's financial position or results of operations of
Metals USA for any future period. Since the Acquired Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma financial
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Prospectus. See "Risk Factors"
included elsewhere herein.
F-2
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
SUPPLEMENTAL PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Cash................................. $ 11.9 $ 7.5 $-- $ 19.4
Accounts receivable, net............. 148.1 67.0 -- 215.1
Inventories.......................... 223.3 70.9 4.8 299.0
Prepaid expenses..................... 2.6 .6 -- 3.2
Deferred income tax asset............ 2.7 .1 -- 2.8
Other................................ 4.3 .5 -- 4.8
------------- ------------ ----------- ---------
Total current assets............ 392.9 146.6 4.8 544.3
Property and equipment, net.......... 107.1 24.0 6.7 137.8
Goodwill, net........................ 156.8 2.0 90.9 249.7
Other assets, net.................... 13.4 2.7 -- 16.1
------------- ------------ ----------- ---------
Total assets.................... $ 670.2 $175.3 $ 102.4 $ 947.9
============= ============ =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 81.5 $ 43.3 $-- $ 124.8
Accrued liabilities.................. 19.0 6.7 -- 25.7
Current portion of long-term debt.... 9.8 17.2 (17.2) 9.8
Income taxes payable................. 3.4 .6 -- 4.0
------------- ------------ ----------- ---------
Total current liabilities....... 113.7 67.8 (17.2) 164.3
Long-term debt, less current
portion............................ 273.2 20.3 168.9 462.4
Deferred income tax liability........ 8.6 .8 -- 9.4
Other long-term liabilities.......... 4.9 .4 3.0 8.3
------------- ------------ ----------- ---------
Total liabilities............... 400.4 89.3 154.7 644.4
------------- ------------ ----------- ---------
Stockholders' equity:
Preferred stock.................... -- .8 (.8) --
Common stock....................... .4 15.1 (15.1) .4
Additional paid-in capital......... 223.4 4.6 29.1 257.1
Unearned compensation.............. (1.5) -- -- (1.5)
Retained earnings.................. 47.5 68.9 (68.9) 47.5
Treasury stock..................... -- (3.4) 3.4 --
------------- ------------ ----------- ---------
Total stockholders' equity...... 269.8 86.0 (52.3) 303.5
------------- ------------ ----------- ---------
Total liabilities and stockholders'
equity............................. $ 670.2 $175.3 $ 102.4 $ 947.9
============= ============ =========== =========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
F-3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUPPLEMENTAL PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $ 537.6 $1,063.9 $ 1.1 $ 1,602.6
Operating costs and expenses:
Cost of sales...................... 414.9 826.7 1.3 1,242.9
Operating and delivery............. 53.7 89.8 (2.0) 141.5
Selling, general and
administrative................... 41.1 86.1 (19.9) 107.3
Depreciation and amortization...... 5.6 8.4 5.2 19.2
------------ ------------ ----------- -----------
Operating income........................ 22.3 52.9 16.5 91.7
Other (income) expense:
Interest expense................... 5.0 11.6 16.9 33.5
Other (income) expense............. (.5) (2.6) 1.0 (2.1)
------------ ------------ ----------- -----------
Income before income taxes.............. 17.8 43.9 (1.4) 60.3
Provision for income taxes.............. 10.3 6.6 9.4 26.3
------------ ------------ ----------- -----------
Net income.............................. $ 7.5 $ 37.3 $ (10.8) $ 34.0
============ ============ =========== ===========
Earnings per share...................... $ .90
Earnings per share -- assuming
dilution.............................. $ .89
Number of common shares used in the per
share calculations:
Earnings per share................. 37.9
Earnings per share -- assuming
dilution......................... 38.2
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
F-4
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUPPLEMENTAL PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $278.5 $172.5 $-- $ 451.0
Operating costs and expenses:
Cost of sales...................... 214.6 130.9 .2 345.7
Operating and delivery............. 26.0 12.5 (.3) 38.2
Selling, general and
administrative................... 18.1 12.9 (1.1) 29.9
Depreciation and amortization...... 3.0 1.1 .7 4.8
------------ ------------ ----------- ---------
Operating income........................ 16.8 15.1 .5 32.4
Other (income) expense:
Interest expense................... 4.8 1.3 3.2 9.3
Other (income) expense............. (.1) (.7) 1.1 .3
------------ ------------ ----------- ---------
Income before income taxes.............. 12.1 14.5 (3.8) 22.8
Provision for income taxes.............. 4.9 1.4 2.8 9.1
------------ ------------ ----------- ---------
Net income.............................. $ 7.2 $ 13.1 $ (6.6) $ 13.7
============ ============ =========== =========
Earnings per share...................... $ .36
Earnings per share -- assuming
dilution.............................. $ .35
Number of common shares used in the per
share calculations:
Earnings per share................. 37.9
Earnings per share -- assuming
dilution......................... 38.6
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
F-5
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
1. GENERAL:
Metals USA, Inc. ("Metals USA") was founded to become a leading national
value-added metals processor/service center, to manufacture higher-value
components from processed metals and to pursue actively the consolidation of the
highly-fragmented metals processing industry. Prior to the IPO, Metals USA had
conducted no operations. Metals USA acquired the Founding Companies concurrently
with the consummation of the IPO, with the Subsequent Acquisitions occurring
from September 26, 1997 through July 21, 1998.
The pro forma balance sheet reflects the supplemental consolidated
financial position of Metals USA as restated for the effects of the business
combinations with Jeffreys, Wayne and Krohn accounted for using the
"pooling-of-interests" method of accounting ("Supplemental Consolidated"
column). The "Purchase Acquisitions" column gives effect to the acquisitions
of Sierra, Industrial, Fullerton, Faitoute, Steel Manufacturing, Wilkof, Forest,
LaserPro, ABS, Valley, Flagg, Geneva, Professional and Intsel as if they had
occurred on March 31, 1998.
The pro forma statements of operations reflect the supplemental
consolidated results of operations of Metals USA as restated for the effects of
the business combinations with Jeffreys, Wayne and Krohn accounted for using the
"pooling-of-interests" method of accounting ("Supplemental Consolidated"
column). The "Purchase Acquisitions" column reflects the pre-acquisition
results of operations of the companies acquired using the "purchase" method of
accounting.
2. ACQUISITION OF COMPANIES:
Concurrently with and as a condition to the consummation of the IPO, Metals
USA acquired all of the outstanding capital stock of the Founding Companies.
These acquisitions were accounted for using the purchase method of accounting.
During the third and fourth quarters of 1997, acquisitions were completed which
included Federal Bronze, Harvey, Jeffreys, Meier, Wayne, Royal and RJ
Fabricating, with all except Jeffreys and Wayne being accounted for using the
"purchase" method of accounting. During 1998, through July 21, 1998,
acquisitions were completed which included Independent, Pacific, Metalmart, Mark
Metals, Western, National, Sierra, Concord, Industrial, Levinson, Fullerton,
Faitoute, Steel Manufacturing, Wilkof, Forest, LaserPro, ABS, Valley, Flagg,
Geneva, Professional and Intsel, which were all accounted for using the
"purchase" method of accounting. In addition, the acquisition of Krohn was
completed in May 1998 and was accounted for using the "pooling-of-interests"
method of accounting.
The aggregate consideration paid by Metals USA for the Acquired Companies
consisted of approximately $263.7 in cash, 26,370,272 shares of Common Stock,
$3.7 million of notes plus the assumption of approximately $233.6 of
indebtedness. The consideration paid by Metals USA for each of the Acquired
Companies was determined by negotiation between representatives of each Acquired
Company and was based primarily upon the pro forma adjusted net income of each
Acquired Company.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS AND OFFERING TRANSACTIONS:
The pro forma adjustments in the unaudited pro forma balance sheet give
effect to the acquisitions completed subsequent to March 31, 1998 comprised of
(i) the issuance of 2,262,648 shares of Common Stock and $3.7 million of notes
and $151.2 of debt incurred for the cash portion of the consideration exchanged
for the common stock of the companies acquired, (ii) the estimated excess of
purchase price paid over fair value of assets acquired of $90.9 reflected as
additional goodwill, (iii) the purchase of additional property and equipment for
$6.7 and (iv) an adjustment of $4.8 to increase inventory accounted for
utilizing the last-in, first-out method of accounting to fair value.
F-6
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997:
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed to prospectively.
(b) Reflects the $11.0 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively and the reversal of the $6.0 non-cash compensation
charge related to the issuance of 400,000 shares of common stock
to management of and consultants to the Company offset by a $.3
charge for recurring salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result
of the IPO and Subsequent Acquisitions over a 40-year estimated
life plus additional depreciation expense due to the allocation of
a portion of the excess purchase price to property and equipment.
(d) Reflects the assumed reductions in interest expense of $1.5 due to
refinancing of the outstanding indebtedness in conjunction with
the IPO and Subsequent Acquisitions, offset by an assumed increase
in interest expense of $12.9 due to financing the Subsequent
Acquisitions.
(e) Reflects the pre-acquisition results of operations for Cornerstone
Aluminum (acquired February 1997) as if the acquisition was
completed as of January 1, 1997.
(f) Reflects a $.7 charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales. These adjustments result from
the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1,
1997. Other adjustments reflect certain other nonrecurring
expenses with respect to the Subsequent Acquisitions, such as
expenses associated with compensation plans which were terminated
in conjunction with the acquisitions of their respective
companies.
(g) Reflects the incremental interest expense of $4.6 and amortization
of deferred financing costs of $.8 incurred as a result of the
issuance of the Notes and the Credit Facility and the repayment of
outstanding indebtedness of the Company.
(h) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ .4 $ .7 $ -- $ --
Operating costs and expenses:
Cost of sales.................... -- -- -- -- .3 1.0 -- --
Operating and delivery........... (1.5) -- -- -- -- (.5) -- --
Selling, general and
administrative................. (.3) (16.7) -- -- .1 (3.0) -- --
Depreciation and amortization.... .4 -- 4.7 -- -- .1 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... 1.4 16.7 (4.7) -- -- 3.1 -- --
Other (income) expense:
Interest (income) expense........ .1 -- -- 11.4 -- -- 5.4 --
Other (income) expense........... .1 -- -- -- -- .9 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes........... 1.2 16.7 (4.7) (11.4) -- 2.2 (5.4) --
Provision for income taxes........... -- -- -- -- -- -- -- 9.4
--------- --------- --------- --------- --------- --------- --------- ---------
Net income........................... $ 1.2 $ 16.7 $ (4.7) $ (11.4) $ -- $ 2.2 $ (5.4) $ (9.4)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
PRO FORMA
ADJUSTMENTS
-----------
Net sales............................ $ 1.1
Operating costs and expenses:
Cost of sales.................... 1.3
Operating and delivery........... (2.0)
Selling, general and
administrative................. (19.9)
Depreciation and amortization.... 5.2
-----------
Operating income..................... 16.5
Other (income) expense:
Interest (income) expense........ 16.9
Other (income) expense........... 1.0
-----------
Income before income taxes........... (1.4)
Provision for income taxes........... 9.4
-----------
Net income........................... $ (10.8)
===========
F-7
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed to prospectively.
(b) Reflects the $.6 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively.
(c) Reflects the amortization of goodwill to be recorded as a result
of the Subsequent Acquisitions over a 40-year estimated life plus
additional depreciation expense due to the allocation of a portion
of the excess purchase price to property and equipment.
(d) Reflects the assumed reductions in interest expense of $.1 due to
refinancing of the outstanding indebtedness in conjunction with
the Subsequent Acquisitions, offset by an assumed increase in
interest expense of $2.6 due to financing the Subsequent
Acquisitions.
(e) Reflects a $.2 charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales. These adjustments result from
the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1,
1997. Other adjustments reflect certain other nonrecurring
expenses with respect to the Subsequent Acquisitions, such as
expenses associated with compensation plans which were terminated
in conjunction with the acquisitions of their respective
companies.
(f) Reflects the incremental interest expense of $.6 and amortization
of deferred financing costs of $.1 incurred as a result of the
issuance of the Notes and the Credit Facility and the repayment of
outstanding indebtedness of the Company.
(g) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $--
Operating costs and expenses:
Cost of sales.................... -- -- -- -- .2 -- -- .2
Operating and delivery........... (.2) -- -- -- (.1) -- -- (.3)
Selling, general and
administrative................. (.1) (.6) -- -- (.4) -- -- (1.1)
Depreciation and amortization.... .1 -- .6 -- -- -- -- .7
--------- --------- --------- --------- --------- --------- --------- -----------
Operating income..................... .2 .6 (.6) -- .3 -- -- .5
Other (income) expense:
Interest (income) expense........ -- -- -- 2.5 -- .7 -- 3.2
Other (income) expense........... -- -- -- -- 1.1 -- -- 1.1
--------- --------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... .2 .6 (.6) (2.5) (.8) (.7) -- (3.8)
Provision for income taxes........... -- -- -- -- -- -- 2.8 2.8
--------- --------- --------- --------- --------- --------- --------- -----------
Net income........................... $ .2 $ .6 $ (.6) $ (2.5) $ (.8) $ (.7) $ (2.8) $ (6.6)
========= ========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metals USA, Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
Metals USA, Inc. (a Delaware corporation) and subsidiaries (the "Company") as
of December 31, 1997 and 1996, and the related supplemental consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended December 31, 1997. The supplemental consolidated
financial statements give retroactive effect to the merger with Krohn Steel
Service Center, Inc. ("Krohn") on May 29, 1998, which has been accounted for
as a "pooling-of-interests" as described in Note 1. These supplemental
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the supplemental consolidated
financial position of Metals USA, Inc. and subsidiaries as of December 31, 1997
and 1996, and the supplemental consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, after giving retroactive effect to the merger with Krohn as described in
Note 1, all in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 30, 1998
F-9
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
--------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash............................ $ 7.3 $ 2.4
Accounts receivable, net of
allowance of $3.6 and $.3...... 95.1 23.8
Inventories..................... 159.4 45.8
Prepaid expenses................ 1.9 .7
Deferred income tax asset....... 1.5 1.1
Other........................... 2.2 .6
--------- ---------
Total current assets....... 267.4 74.4
Property and equipment, net.......... 86.5 30.7
Goodwill, net........................ 120.1 --
Other assets, net.................... 6.6 2.2
--------- ---------
Total assets............... $ 480.6 $ 107.3
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 52.5 $ 16.3
Accrued liabilities............. 13.1 2.8
Current portion of long-term
debt............................ 7.2 3.2
Income taxes payable............ 1.6 .5
--------- ---------
Total current
liabilities.................. 74.4 22.8
Long-term debt, less current
portion.............................. 167.1 24.6
Deferred income tax liability........ 8.1 1.4
Other long-term liabilities.......... 4.5 1.0
--------- ---------
Total liabilities.......... 254.1 49.8
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued
and outstanding............... -- --
Common stock, $.01 par value,
203,122,914 shares authorized,
32,680,226 and 13,216,227
shares outstanding,
respectively................... .3 .1
Additional paid-in capital...... 184.6 17.3
Unearned compensation........... (1.5) (1.8)
Retained earnings............... 43.1 41.9
--------- ---------
Total stockholders'
equity....................... 226.5 57.5
--------- ---------
Total liabilities and
stockholders' equity......... $ 480.6 $ 107.3
========= =========
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-10
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net sales............................... $ 537.6 $ 265.5 $ 260.9
Operating costs and expenses:
Cost of sales...................... 414.9 204.0 204.7
Operating and delivery............. 53.7 25.4 22.0
Selling, general and
administrative................... 41.1 21.4 15.6
Depreciation and amortization...... 5.6 3.7 3.0
--------- --------- ---------
Operating income........................ 22.3 11.0 15.6
Other (income) expense:
Interest expense................... 5.0 1.8 2.4
Other income....................... (.5) (.7) (.5)
--------- --------- ---------
Income before income taxes.............. 17.8 9.9 13.7
Provision for income taxes.............. 10.3 5.4 5.6
--------- --------- ---------
Net income.............................. $ 7.5 $ 4.5 $ 8.1
========= ========= =========
Earnings per share...................... $ .33 $ .38 $ .86
========= ========= =========
Earnings per share -- assuming
dilution.............................. $ .33 $ .38 $ .86
========= ========= =========
Number of common shares used in the per
share calculations:
Earnings per share................. 22.5 11.8 9.4
========= ========= =========
Earnings per share -- assuming
dilution......................... 22.9 11.8 9.4
========= ========= =========
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-11
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................... $ 7.5 $ 4.5 $ 8.1
Adjustments to reconcile net
income to net cash provided by
operating activities --
Capital contributions
attributable to deemed tax
payments of S
Corporations.............. 4.0 3.2 3.6
Provision for bad debts..... .6 .2 .3
Depreciation and
amortization.............. 5.6 3.7 3.0
Deferred income taxes....... .7 (.2) .3
Deferred financing costs
incurred.................. (1.0) -- .1
Compensation charged against
notes receivable.......... -- .5 --
Compensation
expense -- management
shares.................... 6.0 3.6 --
Changes in operating assets
and liabilities, net of
business acquisitions --
Accounts receivable..... 1.3 -- 2.7
Inventories............. (7.4) (11.2) 11.2
Prepaid expenses and
other assets.......... (.3) (.2) --
Accounts payable and
accrued liabilities... (14.0) 5.5 (4.0)
Income taxes payable.... .4 .2 --
Other operating............. (.1) (.3) (.2)
--------- --------- ---------
Net cash provided
by operating
activities....... 3.3 9.5 25.1
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property............ (18.7) (6.7) (8.9)
Purchase of businesses, net of
acquired cash................... (68.6) -- (6.0)
Other investing.................. 1.4 .2 (.1)
--------- --------- ---------
Net cash used in
investing
activities....... (85.9) (6.5) (15.0)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock................ 58.3 -- --
Distributions to shareholders.... (6.3) (6.0) (5.4)
Net borrowings (repayments) on
long-term debt.................. (4.0) (2.0) 3.1
Net borrowings (repayments) on
revolving credit facilities..... 39.7 3.1 (3.7)
Net payments on notes payable to
affiliates...................... (.3) (.3) (1.0)
Other financing.................. .1 .2 --
--------- --------- ---------
Net cash provided
by (used in)
financing
activities....... 87.5 (5.0) (7.0)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 4.9 (2.0) 3.1
CASH, beginning of period............ 2.4 4.4 1.3
--------- --------- ---------
CASH, end of period.................. $ 7.3 $ 2.4 $ 4.4
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest.................... $ 5.1 $ 1.8 $ 2.3
Income taxes................ 5.5 2.1 1.7
Non-cash activities --
Retirement plan contribution
charged to unearned
compensation and
additional paid-in
capital................... .4 .6 .6
Purchase of businesses for
stock..................... 197.6 -- --
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-12
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNEARNED RETAINED
STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... $ .1 $ 6.4 $(2.9) $ 39.7 $ 43.3
Shares released under leveraged
ESOP Plan....................... -- .1 .5 -- .6
Capital contributions attributable
to deemed tax payments of S
Corporation..................... -- 3.6 -- -- 3.6
Distributions...................... -- -- -- (5.4) (5.4)
Net income......................... -- -- -- 8.1 8.1
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1995........... .1 10.1 (2.4) 42.4 50.2
Adjustment to conform fiscal
year-ends....................... -- .1 .2 1.0 1.3
Shares released under leveraged
ESOP Plan....................... -- .2 .4 -- .6
Other adjustments.................. -- .1 -- -- .1
Shares issued to members of
management...................... -- 3.6 -- -- 3.6
Capital contributions attributable
to deemed tax payments of S
Corporations.................... -- 3.2 -- -- 3.2
Distributions...................... -- -- -- (6.0) (6.0)
Net income......................... -- -- -- 4.5 4.5
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1996........... .1 17.3 (1.8) 41.9 57.5
Shares issued to members of
management...................... -- 6.0 -- -- 6.0
Shares sold in connection with the
IPO............................. .1 58.2 -- -- 58.3
Shares issued in connection with
the acquisition of the Founding
Companies....................... .1 80.1 -- -- 80.2
Shares issued in connection with
the Subsequent Acquisitions..... -- 18.6 -- -- 18.6
Shares released under leveraged
ESOP Plan....................... -- .1 .3 -- .4
Other adjustments.................. -- .3 -- -- .3
Capital contributions attributable
to deemed tax payments of S
Corporations.................... -- 4.0 -- -- 4.0
Distributions...................... -- -- -- (6.3) (6.3)
Net income......................... -- -- -- 7.5 7.5
------- ----------- ------------- --------- ---------
BALANCE, December 31, 1997........... $ .3 $ 184.6 $(1.5) $ 43.1 $ 226.5
======= =========== ============= ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-13
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded on
July 3, 1996 to become a leading national value-added metals processor service
center, to manufacture higher-value components from processed metals and to
pursue aggressively the consolidation of the highly fragmented metals processing
industry. Prior to its initial public offering ("IPO"), Metals USA had
conducted no operations. Concurrent with the consummation of its IPO on July 11,
1997, Metals USA acquired, in separate transactions (the "Mergers") eight
companies (the "Founding Companies") engaged in the processing of steel,
aluminum and specialty metals, as well as the manufacture of metal components.
Following the IPO and through December 31, 1997, Metals USA acquired seven
additional companies and subsequent to December 31, 1997, has acquired numerous
additional companies in similar businesses (See Note 2). Certain of the
companies acquired after the IPO were accounted for using the
"pooling-of-interests" method, resulting in a restatement of the Company's
financial statements for all periods presented (See Note 2). References herein
to the "Company" include Metals USA and its subsidiaries.
The acquisition of Krohn Steel Service Center, Inc. ("Krohn") met the
"pooling-of-interests" requirements of Accounting Principles Board Opinion No.
16 BUSINESS COMBINATIONS ("APB 16"). The acquisition was completed on May 29,
1998 and, accordingly, the Company's accompanying historical consolidated
financial statements have been restated to reflect the results of operations,
cash flows and financial position of Krohn, as if the acquisition occurred on
January 1, 1995. Because the acquisition occurred after December 31, 1997, these
restated financial statements are labeled as "Supplemental" in accordance with
the rules and regulations of the Securitites and Exchange Commission. See Note
2.
The Company sells to businesses such as the machining, furniture,
transportation equipment, power and process equipment, industrial/commercial
construction, consumer durables and electrical equipment industries, and
machinery and equipment manufacturers. The Company believes that its broad
customer base and its wide array of metals processing capabilities, products and
services, coupled with its broad geographic coverage of the United States,
reduce the Company's susceptibility to economic fluctuations affecting any one
industry or geographical area.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
the disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published and (iii) the reported amount of
revenues and expenses recognized during the periods presented. The Company
reviews all significant estimates affecting its consolidated financial
statements on a recurring basis and records the effect of any necessary
adjustments prior to their publication. Adjustments made with respect to the use
of estimates often relate to improved information not previously available.
Uncertainties with respect to such estimates and assumptions are inherent in the
preparation of financial statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Metals USA and its subsidiaries. All intercompany
accounts and transactions have been eliminated in the consolidated financial
statements. Certain reclassifications have been made to prior years' financial
statements to be consistent with the current year's presentation.
INVENTORIES -- Inventories are stated at the lower of cost or market.
Certain of the Company's subsidiaries use the last-in first-out ("LIFO")
method of accounting for inventories and other subsidiaries use a variety of
methods including specific identification, average cost and the first-in
first-out ("FIFO") method of accounting. As of December 31, 1997 and 1996,
approximately 51.0% and 57.0%, respectively of the consolidated inventories were
accounted for using the LIFO method of accounting.
F-14
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets.
GOODWILL -- Goodwill represents the excess of cost over the estimated fair
value of identifiable assets of the businesses acquired using the "purchase"
method of accounting. Goodwill is stated at cost, net of accumulated
amortization, and is being amortized over a forty-year life using the
straight-line method. The Company reviews the recoverability of goodwill and
other long-lived assets including other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may be impaired. The Company has not recorded any impairment losses
with respect to goodwill, other long-lived assets or other intangible assets as
of December 31, 1997. Accumulated amortization totaled $1.2 as of December 31,
1997.
OTHER ASSETS -- Other assets include deferred financing costs and other
intangible assets, which are being amortized over the estimated useful life of
the related borrowing or intangible asset. Accumulated amortization of other
assets totaled $1.1 and $.5 as of December 31, 1997 and 1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. The carrying amounts of notes payable approximate fair value at
the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. Concentrations of credit
risk with respect to trade accounts are within the machining, furniture,
transportation equipment, power and process equipment, industrial/commercial
construction, consumer durables and electrical equipment industries, and
machinery and equipment manufacturers. Generally, credit is extended once
appropriate credit history and references have been obtained. Adjustments to the
allowance for doubtful accounts are made periodically (as circumstances warrant)
based upon the expected collectibility of all such accounts. The Company
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.
INCOME TAXES -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for the future tax consequences of differences between the tax bases
of assets and liabilities and their financial reporting amounts based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Provision for income taxes represents the amount of taxes
payable and the applicable changes in deferred tax assets and liabilities.
EARNINGS PER SHARE -- In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings Per Share." The Company adopted SFAS No. 128 for the year
ended December 31, 1997. SFAS No. 128 simplifies the standards required under
current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share ("Earnings per Share") and
diluted earnings per share ("Earnings per Share -- Assuming Dilution").
Earnings per Share excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Earnings per Share -- Assuming Dilution reflects
the potential dilution that could occur if securities and other contracts to
issue common stock were exercised or converted into common stock. Earnings per
Share -- Assuming Dilution is computed similarly to fully diluted earnings per
share under previous accounting rules.
F-15
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Earnings per Share was computed using 9,448,313 shares (the aggregate
number of shares issued in connection with the acquisition of entities accounted
for using the "pooling-of-interests" method of accounting) for periods prior
to July 3, 1996 (date of inception). The 4,753,414 shares issued in connection
with the organization of Metals USA, including shares issued to management, were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. The 6,785,000 shares issued
in connection with the IPO and the 11,693,499 shares issued in connection with
the entities acquired using the "purchase" method of accounting have been
included in the Earnings per Share computation only from their respective dates
of issuance, resulting in weighted average shares of 8,341,480 for the year
ended December 31, 1997. Earnings per Share -- Assuming Dilution differs from
the Earnings per Share computation due to the inclusion of stock options that
were dilutive.
STOCK BASED COMPENSATION -- Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," allows
entities to choose between the fair value based method of accounting for
employee stock options or similar equity instruments and the intrinsic,
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees."
The Company has elected to account for stock options or similar equity
instruments using the intrinsic, value-based method of accounting prescribed in
APB No. 25.
2. BUSINESS COMBINATIONS
POOLING TRANSACTIONS
On September 26, 1997, Metals USA completed the acquisition of all the
capital stock of Jeffreys Steel Company, Inc. ("Jeffreys") in a business
combination accounted for as a "pooling-of-interests" transaction in
accordance with the requirements of APB No. 16. Jeffreys is headquartered in
Mobile, Alabama, and is engaged in the wholesale and retail sale of steel.
Jeffreys has historically reported on a July 31 fiscal year-end. For purposes of
the merger with Metals USA, the accompanying financial statements reflect
Jeffreys on a calendar year-end basis effective January 1, 1996. The historical
financial information of Jeffreys for the year ended July 31, 1995 has been
included in the Company's consolidated financial statements for the year ended
December 31, 1995. The net sales and net income of Jeffreys for the period from
August 1, 1995, through December 31, 1995, were $51.0 and $1.0, respectively.
The net income of Jeffreys for this transition period is included in the
accompanying consolidated statements of stockholders' equity as an adjustment to
retained earnings in order to conform their fiscal year to that of the Company.
On November 20, 1997, Metals USA completed the acquisition of all the
capital stock of Wayne Steel, Inc. ("Wayne") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. Wayne operates as a wholesaler and processor of
steel and aluminum flat rolled products and is headquartered in Wooster, Ohio.
On May 29, 1998, Metals USA completed the acquisition of all the capital
stock of Krohn Steel Service Center, Inc. ("Krohn") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. Krohn is a processor of flat rolled steel and is
headquartered in Springfield, Ohio.
Prior to the acquisition by Metals USA, the shareholders of Wayne and Krohn
had elected to be taxed as S Corporations; accordingly, any federal income tax
liabilities for the periods prior to the acquisition dates were the
responsibility of the respective stockholders. For purposes of these
consolidated financial statements, federal income taxes have been provided as if
Wayne and Krohn had filed C Corporation tax returns for the pre-acquisition
periods, with the current income tax provisions reflected in the consolidated
financial statements as increases to additional paid-in capital. Collectively,
Metals USA issued 9,448,313 shares of common stock in exchange for all of the
capital stock of Jeffreys, Wayne and Krohn. The unaudited aggregate
pre-acquisition net sales and net income for Jeffreys, Wayne and Krohn during
1997 were $239.9 and $8.9, respectively. There were no transactions between
Metals USA, Jeffreys, Wayne or Krohn during periods prior to these business
combinations.
F-16
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table summarizes the restated consolidated net sales, net
income and per share data of the Company after giving effect to the acquisition
of Krohn:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
NET NET NET
NET SALES INCOME NET SALES INCOME NET SALES INCOME
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales and net income --
As previously reported in the
Company's Form 10-K for the year
ended December 31, 1997.......... $ 507.8 $6.0 $ 240.1 $3.3 $ 235.2 $6.9
Acquisition accounted for as
"pooling-of-interests"......... 29.8 1.5 25.4 1.2 25.7 1.2
--------- ------ --------- ------ --------- ------
As restated................... $ 537.6 $7.5 $ 265.5 $4.5 $ 260.9 $8.1
========= ====== ========= ====== ========= ======
Earnings per share --
As previously reported in the
Company's Form 10-K for the year
ended December 31, 1997.......... $.28 $.31 $.84
Acquisition accounted for as
"pooling-of-interests"......... .05 .07 .02
------ ------ ------
As restated................... $.33 $.38 $.86
====== ====== ======
Earnings per share -- assuming
dilution --
As previously reported in the
Company's Form 10-K for the year
ended December 31, 1997.......... $.28 $.31 $.84
Acquisition accounted for as
"pooling-of-interests"......... .05 .07 .02
------ ------ ------
As restated................... $.33 $.38 $.86
====== ====== ======
</TABLE>
PURCHASE TRANSACTIONS
Concurrent with the completion of its IPO on July 11, 1997, Metals USA
acquired the eight Founding Companies, which are in the metal processing and
distribution business. The companies acquired were Affiliated Metals Company
headquartered in Granite City, Illinois; Interstate Steel Supply Co.
headquartered in Philadelphia, Pennsylvania; Queensboro Steel Corporation
headquartered in Wilmington, North Carolina; Southern Alloy of America, Inc.
headquartered in Salisbury, North Carolina; Steel Service Systems, Inc.
headquartered in Horicon, Wisconsin; Texas Aluminum Industries, Inc./The
Cornerstone Group headquartered in Houston, Texas; Uni-Steel, Inc. headquartered
in Enid, Oklahoma and Williams Steel & Supply Co., Inc. headquartered in
Milwaukee, Wisconsin. The acquisition of each of the Founding Companies was
accounted for using the "purchase" method of accounting in accordance with APB
No. 16. The aggregate consideration paid by Metals USA to acquire the Founding
Companies was approximately $27.8 in cash, 10,128,609 shares of common stock and
the assumption of $92.6 of debt.
Subsequent to the IPO, Metals USA acquired five additional companies using
the "purchase" method of accounting in accordance with APB No. 16. The
acquisitions completed in September 1997 included Harvey Titanium, Ltd.
headquartered in Santa Monica, California; Meier Metal Servicenters, Inc.
headquartered in Hazel Park, Michigan and the business of Federal Bronze
Products, Inc., headquartered in Newark, New Jersey. The acquisitions completed
in December 1997 included Royal Aluminum, Inc. headquartered in Leesburg,
Florida and R. J. Fabricating Inc. headquartered in Milwaukee, Wisconsin. These
five companies are referred to collectively as the "1997 Subsequent
Acquisitions." The aggregate
F-17
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
consideration paid by Metals USA for the 1997 Subsequent Acquisitions consists
of approximately $44.1 in cash, 1,564,890 shares of common stock and the
assumption of indebtedness of approximately $15.4.
The Company has recorded the excess of the purchase price over the
estimated fair value of identifiable assets acquired in connection with both the
Founding Companies and the 1997 Subsequent Acquisitions as "goodwill" in the
accompanying consolidated balance sheet. The goodwill is being amortized over a
forty-year period. The results of operations of the Founding Companies and the
1997 Subsequent Acquisitions are included in the accompanying consolidated
financial statements from their respective dates of acquisition.
The following summarized unaudited pro forma financial information reflects
the supplemental consolidated financial information of the Company and assumes
the acquisition of the Founding Companies, the 1997 Subsequent Acquisitions and
the issuance of the Notes (as defined in Note 6) occurred on January 1, 1996.
The pro forma decrease in earnings resulting from the issuance of the Notes was
approximately $.11 per share for both periods presented.
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
(UNAUDITED)
Net sales............................ $ 884.4 $ 788.9
Operating costs and expenses:
Cost of sales................... 679.8 603.4
Operating and delivery.......... 87.8 76.8
Selling, general and
administrative................ 57.1 51.3
Depreciation and amortization... 10.4 11.3
------------ ------------
Operating income..................... 49.3 46.1
Interest expense..................... 16.4 15.4
Other (income) expense............... (1.2) (1.3)
------------ ------------
Income before income taxes........... 34.1 32.0
Provision for income taxes........... 13.9 13.8
------------ ------------
Net income........................... $ 20.2 $ 18.2
============ ============
Earnings per share................... $ .62 $ .56
============ ============
Earnings per share -- assuming
dilution........................... $ .61 $ .56
============ ============
Number of common shares used in per
share calculations:
Earnings per share.............. 32,680,226 32,680,226
============ ============
Earnings per share -- assuming
dilution...................... 32,994,818 32,705,838
============ ============
The preceding pro forma amounts reflect the supplemental results of
operations for Metals USA, the Founding Companies and the 1997 Subsequent
Acquisitions, assuming the transactions were completed on January 1, 1996.
Additionally, the amounts shown in the table reflect (a) the reduction in
certain related party rental and lease expenses which has been agreed to
prospectively; (b) the reduction in salaries, bonuses and benefits to the owners
of the acquired companies which they have agreed to prospectively and the
reversal of the non-cash compensation charge related to the issuance of 985,500
and 400,000 shares of common stock to management of and consultants to Metals
USA in 1997 and 1996, respectively, partially offset by a charge for recurring
salary expenses of management; (c) the amortization of goodwill recorded as a
result of the acquisition of the Founding Companies and 1997 Subsequent
Acquisitions over a forty-year estimated life plus additional depreciation
expense due to the allocation of a portion of the excess purchase price to
property and equipment; (d) the assumed reductions in interest expense due to
the refinancing of the outstanding indebtedness in conjunction with the
acquisition of the Founding Companies and 1997 Subsequent Acquisitions, offset
by an assumed increase in interest expense incurred in connection
F-18
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
with financing the acquisitions; (e) the pre-acquisition results of operations
for subsidiaries or affiliates of the Founding Companies which were acquired by
the Founding Companies prior to the related acquisition by Metals USA, as if
those previous acquisitions were completed as of January 1, 1996; (f) a charge
eliminating the gains recorded as historical LIFO adjustments to cost of sales
as a result of the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1, 1996; (g)
certain other nonrecurring expenses with respect to the 1997 Subsequent
Acquisitions, such as expenses associated with compensation plans which were
terminated in conjunction with the acquisitions of their respective companies;
(h) the incremental interest expense and amortization of deferred financing
costs incurred as a result of the issuance of the Notes and the Credit Facility
(as defined in Note 6), net of the repayment of outstanding indebtedness of the
Company and (i) the incremental provision for federal and state income taxes for
all entities being combined.
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Raw materials --
Structural steel................ $ 8.4 $ 19.7
Flat-rolled steel............... 44.8 18.0
Specialty metals................ 22.0 --
Aluminum products............... 17.6 .6
Other........................... 1.7 4.0
--------- ---------
Total raw materials........ 94.5 42.3
--------- ---------
Work-in-process and finished goods --
Structural steel................ 35.8 --
Flat-rolled steel............... 19.2 5.1
Specialty metals................ 5.1 --
Aluminum products............... 6.7 .4
--------- ---------
Total work-in-process and
finished goods.......... 66.8 5.5
--------- ---------
Less -- LIFO reserve................. (1.9) (2.0)
--------- ---------
Total...................... $ 159.4 $ 45.8
========= =========
The replacement cost of the Company's inventory exceeds the historical cost
of the inventory, computed using the LIFO method of valuation, as reported in
the accompanying consolidated financial statements. If the FIFO method had been
used for all inventories, the carrying value would have been $161.3 and $47.8 at
December 31, 1997 and 1996, respectively. Additionally, net income would have
been $7.5, $4.5 and $8.4 for the years ended December 31, 1997, 1996 and 1995,
respectively.
F-19
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1997 1996
------------ --------- ---------
Land................................. $ 3.8 $ 1.5
Building and improvements............ 5-40 years 35.5 18.5
Machinery and equipment.............. 7-30 years 61.1 22.7
Automobiles and trucks............... 3-12 years 7.0 5.3
--------- ---------
107.4 48.0
Less -- Accumulated depreciation..... (20.9) (17.3)
--------- ---------
Total........................... $ 86.5 $ 30.7
========= =========
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $4.1, $3.7 and $3.0, respectively. Additionally, following the acquisitions
of Wayne and Jeffreys, the Company revised the estimated useful lives of the
depreciable assets of Wayne and Jeffreys to conform to the conventions adopted
by the Founding Companies. This revision reduced depreciation expense in 1997 as
compared to 1996 by approximately $1.2.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Accrued salaries and employee
benefits........................... $ 5.0 $ 1.0
Accrued taxes other than income...... 1.9 .7
Accrued interest..................... 1.0 .1
Accrued profit sharing............... 1.3 .4
Other................................ 3.9 .6
--------- ---------
Total........................... $ 13.1 $ 2.8
========= =========
6. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Borrowings under the Credit
Facility............................. $ 144.8 $ --
Revolving credit facility with
interest at prime less 1.0%,
maturing on December 31, 1998,
secured by inventory and trade
accounts receivable................ -- 13.3
Various issues of Industrial Revenue
Bonds.............................. 21.6 8.0
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
prime with an 8.5% cap through
February 1998...................... 1.7 2.1
Obligations under capital leases and
other.............................. 6.2 4.4
--------- ---------
174.3 27.8
Less -- Current portion.............. (7.2) (3.2)
--------- ---------
$ 167.1 $ 24.6
========= =========
F-20
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Scheduled maturities of long-term debt for the years ending December 31 are
as follows: 1998 -- $7.2; 1999 -- $2.2; 2000 --$2.5; 2001 -- $2.4; 2002 -- $2.3;
thereafter -- $157.7.
The Industrial Revenue Bonds (the "IRBs") are payable in installments
ranging from monthly to annual with variable interest ranging from 4.35% to
6.61% per annum at December 31, 1997 and mature from May 1, 2003 to May 1, 2009.
The IRBs are secured by real estate and equipment acquired with proceeds from
these bonds with a net book value of $21.2 at December 31, 1997. The IRBs place
various restrictions on certain of the Company's subsidiaries, including but not
limited to maintenance of required insurance coverage, maintenance of certain
financial ratios, limits on capital expenditures, maintenance of tangible net
worth and letters of credit.
Concurrent with the IPO, the Company obtained an initial $150.0 unsecured
revolving credit facility (the "Original Credit Facility") which was used to
fund acquisitions, refinance certain indebtedness of the acquired companies and
for general corporate and working capital requirements. In January 1998, the
Company obtained a $50.0 unsecured revolving credit facility (the "Interim
Credit Facility") to meet its acquisition related cash requirements pending the
completion of an extension and modification of the Original Credit Facility to
provide for up to $300.0 of borrowing availability. The closing of the extension
and modification of the $300.0 credit facility (the "Credit Facility") on
February 11, 1998 stipulated the termination of the Interim Credit Facility. The
Credit Facility matures in February 2003, bears interest at the bank's prime
rate or LIBOR, at Metals USA's option, plus an applicable margin based on the
ratio of funded debt to cash flows (as defined). An annual commitment fee of up
to 1/4% is payable on any unused portion of the Credit Facility. The Company
will use the Credit Facility to fund acquisitions, make capital expenditures,
refinance debt of the companies acquired and for general working capital
requirements. Borrowings under the Credit Facility are secured by the pledge of
all of the capital stock of each of the Company's material subsidiaries (as
defined). In connection with the IPO, the Mergers and the 1997 Subsequent
Acquisitions, the revolving credit facility and certain other obligations
outstanding as of December 31, 1996 (including certain obligations of the
acquired companies) were repaid with the borrowings under the Credit Facility.
The Credit Facility requires the Company to comply with various affirmative
and negative covenants including: (i) the maintenance of certain financial
ratios, (ii) restrictions on additional indebtedness, (iii) restrictions on
liens, guarantees and dividends, (iv) obtaining the lenders' consent with
respect to certain individual acquisitions, and (v) maintenance of a specified
level of consolidated net worth. At December 31, 1997, the Company was precluded
from the payment of dividends under the terms of the Credit Facility.
On February 11, 1998, the Company completed the sale of $200.0 aggregate
principal amount of the Company's 8 5/8% Senior Subordinated Notes due 2008 (the
"Notes"). The Company received $194.5 of net cash proceeds (before expected
expenses of $.8 upon closing). The Company used $179.3 of such proceeds to repay
the borrowings outstanding under the Original Credit Facility and Interim Credit
Facility on February 11, 1998. As of February 12, 1998, the entire amount of the
Credit Facility was available to the Company.
The Notes call for semi-annual interest payments on February 15 and August
15 of each year, beginning August 15, 1998 and mature on February 15, 2008. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after February 15, 2003, at the following redemption prices:
2003 -- 104.313%; 2004 -- 102.875%; 2005 -- 101.438%; thereafter -- 100.00%,
together with accrued and unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time on or prior to February 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net proceeds of one or more offerings of the common
stock of the Company, at a redemption price equal to 108.625% of the principal
amount thereof, plus accrued and unpaid interest to the
F-21
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
date of such redemption; provided that at least 65% of the aggregate principal
amount of Notes originally issued remains outstanding immediately after such
redemption. The Notes are guaranteed by substantially all of the Company's
current and future subsidiaries, and contain certain covenants restricting
additional indebtedness, liens, transactions with affiliates, asset sales,
investments, payment restrictions affecting subsidiaries and mergers and
acquisitions of subsidiaries. The Notes are subordinate to borrowings under the
Credit Facility and will rank PARI PASSU in right of payment with all other
future subordinated debt of the Company and will rank senior to other
indebtedness that expressly provides that it is subordinated in right of payment
to the Notes. The Company has agreed, for the benefit of all holders of the
Notes, that it will file a registration statement within 60 days after the
issuance of the Notes relating to an exchange offer for the Notes under the
Securities Act of 1933, as amended.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal --
Current......................... $ 8.7 $ 4.5 $ 4.3
Deferred........................ (.2) (.1) .2
--------- --------- ---------
8.5 4.4 4.5
State --
Current......................... 1.9 1.1 1.0
Deferred........................ (.1) (.1) .1
--------- --------- ---------
1.8 1.0 1.1
--------- --------- ---------
Total provision............ $ 10.3 $ 5.4 $ 5.6
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal income tax at statutory
rates.............................. $ 6.2 $ 3.5 $ 4.8
State income taxes, net of federal
income tax benefit................. 1.2 .5 .6
Nondeductible expenses:
Stock compensation.............. 2.1 1.3 --
Amortization of goodwill........ .4 -- --
Other........................... .4 .1 .2
--------- --------- ---------
$ 10.3 $ 5.4 $ 5.6
========= ========= =========
F-22
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The significant items giving rise to the deferred tax assets (liabilities)
are as follows:
DECEMBER 31,
----------------------
1997 1996
---------- ----------
Deferred tax assets --
Allowance for doubtful
accounts........................ $ 1.0 $ .1
Uniform capitalization of
inventory....................... 1.8 .8
Nonqualified plan
contribution.................... -- .2
Accrued liabilities............. 2.1 .2
Deferred compensation........... .5 --
Net operating loss
carryforward.................. .3 --
State taxes..................... .3 --
---------- ----------
Total deferred tax
assets..................... 6.0 1.3
---------- ----------
Deferred tax liabilities --
Property and equipment.......... (7.6) (1.4)
Inventories -- LIFO reserve..... (3.3) --
Foreign investments............. (.9) --
Other........................... (.5) (.2)
---------- ----------
Total deferred tax
liabilities................ (12.3) (1.6)
Valuation allowance.................. (.3) --
---------- ----------
Net deferred tax
(liabilities) assets....... $ (6.6) $ (.3)
========== ==========
8. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
Metals USA effected a 135.81-for-one stock split on April 21, 1997 for each
share of $.01 par value common stock ("Common Stock") then outstanding. In
addition, Metals USA increased the number of authorized shares of Common Stock
to 50,000,000 and the authorized shares of Restricted Common Stock, as defined
below, to 3,122,914 and authorized 5,000,000 shares of $.01 par value preferred
stock, which may be designated in the future. On May 20, 1998, the Company's
stockholders approved an increase in the number of authorized shares of Common
Stock to 200,000,000. The effects of the Common Stock split and the increase in
the shares of authorized Common Stock have been retroactively reflected in the
consolidated balance sheets and in the accompanying notes.
In connection with its organization and initial capitalization, Metals USA
issued 135,810 shares of Common Stock at $.01 per share to Notre Capital
Ventures II, L.L.C. ("Notre"). Notre received 3,232,104 additional shares (at
approximately $.01 per share) in exchange for the contribution of incurred
expenses in December 1996.
In December 1996, 400,000 shares of Common Stock were sold to management at
$.01 per share. During the first and second quarters of 1997, Metals USA issued
a total of 985,500 shares of Common Stock to management of and consultants to
Metals USA at a price of $.01 per share. As a result, Metals USA has recorded a
non-recurring, non-cash compensation charge of $3.6 in 1996 and $6.0 in 1997,
representing the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale, as if the Founding
Companies were combined.
RESTRICTED COMMON STOCK
In April 1997, Notre exchanged 3,122,914 shares of Common Stock for an
equal number of shares of restricted voting common stock ("Restricted Common
Stock"). The holder of Restricted Common Stock is entitled to elect one member
of Metals USA's Board of Directors and to .55 of one vote for each share held on
all other matters on which they are entitled to vote.
F-23
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Each share of Restricted Common Stock will automatically convert into
Common Stock on a share-for-share basis (a) in the event of a disposition of
such share of Restricted Common Stock by the holder thereof (other than a
disposition which is a distribution by a holder to its partners or beneficial
owners or a transfer to a related party of such holder (as defined)), (b) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (c) in the event any person offers to acquire 15% or
more of the total number of outstanding shares of Common Stock.
After July 1, 1998, Metals USA may elect to convert any outstanding shares
of Restricted Common Stock into shares of Common Stock in the event 80% or more
of the outstanding shares of Restricted Common Stock have been converted into
shares of Common Stock.
INITIAL PUBLIC OFFERING
On July 11, 1997 the Company completed its IPO, issuing to the public
5,900,000 shares of its common stock at a price of $10.00 per share, resulting
in net proceeds to the Company of $50.1 after deducting underwriting commissions
and discounts. On August 12, 1997, the Company sold 885,000 shares of Common
Stock pursuant to the over-allotment option granted to the underwriters. The
Company realized net proceeds from the sale of $8.2.
9. STOCK BASED COMPENSATION
LONG-TERM INCENTIVE PLAN
In April 1997, Metals USA's stockholders approved the Company's 1997
Long-Term Incentive Plan (the "Plan"), which provides for the granting or
awarding of incentive or non-qualified stock options ("NQSOs"), stock
appreciation rights, restricted or deferred stock, dividend equivalents and
other incentive awards to officers, key employees and consultants to Metals USA.
The number of shares authorized and reserved for issuance under the Plan is
limited to 13% of the aggregate number of shares of Common Stock outstanding.
The terms of the option awards are established by the Compensation Committee of
Metals USA's Board of Directors. These options will vest at the rate of 20% per
year, commencing on the first anniversary of the IPO or date of grant and will
expire ten years from the date of grant or three months following termination of
employment. The Company did not issue any stock options prior to January 1,
1996. Options granted in 1996 were attributable to an acquired company that was
accounted for as a "pooling-of-interest" business combination. Those options
were converted at the applicable share conversion ratio specified in the merger
agreement and exchanged for Company options issued under the Plan.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
Metals USA's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by Metals
USA's stockholders in April 1997, provides for (i) the automatic grant to each
non-employee director serving at the consummation of the IPO of an option to
purchase 10,000 shares, (ii) the automatic grant to each non-employee director
of an option to purchase 10,000 shares upon such person's initial election as a
director, and (iii) an automatic annual grant at each annual meeting of
stockholders thereafter of an option to purchase 5,000 shares to each
non-employee director at which meeting such director is re-elected or remains a
director, unless such annual meeting is held within three months of such
person's initial election as a director. All options will have an exercise price
per share equal to the fair market value of the Common Stock on the date of
grant and are immediately vested and expire on the earlier of ten years from the
date of grant or one year after termination of service as a director. The
Directors' Plan also permits non-employee directors to elect to receive, in lieu
of cash directors' fees, shares or credits representing "deferred shares" at
future settlement dates, as selected by the director. The number of shares or
deferred shares received will equal the number of shares of Common Stock which,
at the date the fees would otherwise be payable, will have an aggregate fair
market value equal to the amount of such fees.
F-24
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following is a summary of activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
"FAIR
VALUE" OPTIONS FOR
PER SHARE WEIGHTED SHARES OF
OF OPTIONS AVERAGE PRICE COMMON
GRANTED PER SHARE STOCK
------------- ------------- -----------
<S> <C> <C> <C>
Balance January 1, 1996.............. --
Granted.............................. $ 10.06 $ 6.81 172,788
Exercised............................ (42,237)
Canceled or expired.................. --
-----------
Balance December 31, 1996............ 130,551
Granted in connection with the IPO... 6.30 10.00 2,134,024
Granted to directors................. 6.30 10.00 40,000
Granted.............................. 8.22 14.41 949,683
Exercised............................ --
Canceled or expired.................. --
-----------
Balance December 31, 1997............ 3,254,258
===========
</TABLE>
At December 31, 1997, exercisable options for shares of Common Stock were
61,440 at a weighted average price of $6.81 per share and 40,000 at a weighted
average price of $10.00 per share.
The Company used the Black-Scholes model to calculate the estimated
"fair-value" of stock options and similar awards. The model requires the use
of a number of subjective assumptions including: (i) risk free rate of return,
(ii) expected price volatility of the Common Stock, (iii) expected dividend
yield and (iv) estimated life of the option. Principal assumptions used in
estimating the "fair-value" of the Company's stock options using the
Black-Scholes model were as follows:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Risk free rate of return........ 6.18% 6.32%
Expected price volatility....... 43.3% 46.0%
Expected dividend yield......... -- --
Expected life of the option (in
years)......................... 7.5 7.5
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. Had compensation cost for the Company's stock option
plans been determined based upon the fair value at the grant rate, consistent
with the methodology prescribed under the SFAS No. 123, the Company's net income
and earnings per share would have been reduced by the amortization of the
estimated fair value of stock options over the applicable vesting period of such
awards. The following pro forma disclosures may not be representative of similar
future disclosures because: (i) additional options may be granted in future
years and (ii) the computations used to estimate the "fair value" of the stock
options are subject to
F-25
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
significant subjective assumptions, any one or all of which may differ in
material respects from actual amounts.
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net income as reported............... $ 7.5 $ 4.5 $ 8.1
Estimated "fair value" of stock
options vesting during the periods,
net of federal income tax
benefit............................ (1.1) (.1) --
--------- --------- ---------
Adjusted net income.................. $ 6.4 $ 4.4 $ 8.1
========= ========= =========
Adjusted earnings per share.......... $ .28 $ .37 $ .86
========= ========= =========
Adjusted earnings per
share -- assuming dilution......... $ .28 $ .37 $ .86
========= ========= =========
Number of common shares used in the
per share calculations:
Adjusted earnings per share..... 22.5 11.8 9.4
========= ========= =========
Adjusted earnings per
share -- assuming dilution..... 22.9 11.8 9.4
========= ========= =========
10. EMPLOYEE BENEFIT PLANS
PROFIT-SHARING PLANS
Certain subsidiaries of the Company provide various defined contributions
savings plans for their employees (the "Plans"). The Plans cover substantially
all full-time employees of such subsidiaries. Participants vest at varying rates
ranging from full vesting upon participation to those that provide for vesting
to begin after three years of service and are fully vested after seven years.
Certain Plans provide for a deferral option that allows employees to elect to
contribute a portion of their pay into the plan and provide for a discretionary
profit sharing contribution by the individual subsidiary. Generally the
subsidiaries match a portion of the amount deferred by participating employees.
Contributions for the profit sharing portion of the plan are generally at the
discretion of the individual subsidiary board of directors. The aggregate
contributions to the Plans were $.9, $.3 and $.2 for the years ended December
31, 1997, 1996 and 1995, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Under the provisions of an employee stock ownership plan ("ESOP") and its
related trust, Jeffreys made annual contributions to the plan which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees. The plan provided for Jeffreys' purchases of employee
shares to be paid in cash and with the issuance of a note payable. Effective
September 26, 1997, the participation was frozen. Concurrent with the merger
with Metals USA, ESOP shares were exchanged for shares of Metals USA common
stock.
LEVERAGED ESOP ARRANGEMENT
The following disclosure has been restated to reflect the equivalent shares
of Metals USA common stock that were issued in connection with the acquisition
of Jeffreys.
Jeffreys' ESOP held 434,616 shares of stock prior to the purchase of
735,384 shares of outstanding stock from a majority stockholder for $5.31 per
share. The ESOP borrowed the funds to purchase such stock and Jeffreys
guaranteed the repayment of this loan. Jeffreys will repay this loan, plus
interest, through deductible contributions to the plan. As Jeffreys makes
contributions to the plan, which reduces the principal on the note, the plan
will release the corresponding shares related to the reduction in the note
principal. At the point when these shares are no longer specifically secured by
the note payable, they will be allocated to the individual participants of the
plan and considered earned by those employees at that time. Jeffreys accounts
for its ESOP in accordance with Statement of Position 93-6 ("SOP 93-6"),
"Employers' Accounting for Employee Stock Ownership Plans". Accordingly, the
debt of the ESOP is recorded as long-term debt and the shares pledged as
collateral are reported as unearned compensation. As shares are released from
collateral, Jeffreys reports compensation expense equal to the current estimated
market price of the
F-26
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
shares. ESOP share compensation expense was $.4, $.6 and $.6 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Since the obligation is secured by the shares purchased and the note is
guaranteed by Jeffreys, all amounts relating to this transaction are considered
unearned compensation of the employees until such time as the note is deemed
paid and the corresponding shares are released to the individual participants of
the plan. The balance in unearned compensation at December 31, 1997 and 1996 of
$1.5 and $1.8, respectively, results from the leveraged ESOP stock purchase less
the deemed release of shares at cost.
The activity relating to the ESOP shares was as follows:
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Allocated shares at beginning of
year............................... 795,639 710,970 635,856
Shares deemed released for the
current period..................... 87,165 84,669 75,114
Unallocated shares................... 287,196 374,361 459,030
----------- ----------- -----------
Total ESOP shares............... 1,170,000 1,170,000 1,170,000
=========== =========== ===========
In accordance with SOP 93-6, additional paid-in capital is adjusted
whenever the market value of the shares released is more or less than the cost
of the shares released. The increase in additional paid-in capital attributable
to this difference in market value and cost was $.1 and $.2 for the years ended
December 31, 1997 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE AGREEMENTS
The Company's minimum lease obligations under certain long-term
non-cancelable lease agreements for office space, warehouse space and equipment
are as follows: 1998 -- $6.6; 1999 -- $6.0; 2000 -- $5.3; 2001 -- $5.0;
2002 -- $3.9; thereafter -- $26.5.
The Company paid approximately $3.2, $.6 and $.7 in rent expense during the
years ended December 31, 1997, 1996 and 1995, respectively, under operating
leases. Certain of these leases are with affiliated individuals and companies
(see Note 12).
CONTINGENCIES
Subsidiaries of the Company are involved in a variety of claims, lawsuits
and other disputes arising in the ordinary course of business. The Company
believes the resolution of these matters and the incurrence of their related
costs and expenses should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
12. RELATED-PARTY TRANSACTIONS
Transactions with directors, officers, employees (including affiliates of
the foregoing) or affiliates of the Company must be at terms that are no less
favorable to the Company than those available from third parties and must be
approved in advance by a majority of disinterested members of the Board of
Directors.
In connection with the Mergers and certain of the subsequent acquisitions,
subsidiaries of the Company have entered into a number of lease arrangements for
facilities and equipment. These lease arrangements are for periods ranging from
10 to 20 years. Lease payments for these items in respect of the years ended
December 31, 1997, 1996 and 1995 were $1.4, $.3 and $.3, respectively. Future
commitments in respect of these leases are included in the schedule of minimum
lease payments in Note 11.
At December 31, 1997 and 1996 the aggregate principal amount of notes
receivable held by the Company were $.8 and $.1, respectively. Interest accrues
on the notes at rates ranging from 7.5% to 8.0% per annum. The notes call for
regular periodic payments of principal and interest and mature at varying dates
through March 1, 2007. The notes are secured by liens on specific assets of the
affiliates and personnel guarantees of the individuals. As of December 31, 1997,
the notes were current as to payment terms.
F-27
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
At December 31, 1997 and 1996, a subsidiary of the Company (Krohn) had
outstanding notes payable to shareholders in the aggregate principal amount of
$1.3. The notes bear interest at prime plus 2% and are payable on demand.
Interest expense related to these notes for each of the years ended December 31,
1997, 1996 and 1995 was $.1.
13. SUBSEQUENT EVENTS (UNAUDITED)
On May 20, 1998, the Company's stockholders approved an increase in the
number of authorized shares of Common Stock to 200,000,000.
The Unaudited Supplemental Financial Statements included elsewhere in this
Prospectus should be read in conjunction with those presented above with respect
to events occurring after the date of the auditors report.
F-28
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1998 1997
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash............................... $ 11.9 $ 7.3
Accounts receivable, net of
allowance of $4.8 and $3.6......... 148.1 95.1
Inventories........................ 223.3 159.4
Prepaid expenses................... 2.6 1.9
Deferred income tax asset.......... 2.7 1.5
Other.............................. 4.3 2.2
------------ -------------
Total current assets....... 392.9 267.4
Property and equipment, net.......... 107.1 86.5
Goodwill, net........................ 156.8 120.1
Other assets, net.................... 13.4 6.6
------------ -------------
Total assets............... $ 670.2 $ 480.6
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 81.5 $ 52.5
Accrued liabilities................ 19.0 13.1
Current portion of long-term
debt............................... 9.8 7.2
Income taxes payable............... 3.4 1.6
------------ -------------
Total current
liabilities.................. 113.7 74.4
Long-term debt, less current
portion.............................. 273.2 167.1
Deferred income tax liability........ 8.6 8.1
Other long-term liabilities.......... 4.9 4.5
------------ -------------
Total liabilities.......... 400.4 254.1
------------ -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par,
5,000,000 shares authorized and
outstanding, none issued and
outstanding..................... -- --
Common stock, $0.01 par,
203,122,914 shares authorized,
35,646,038 and 32,680,226 shares
issued and outstanding
respectively.................... .4 .3
Additional paid-in capital......... 223.4 184.6
Unearned compensation.............. (1.5) (1.5)
Retained earnings.................. 47.5 43.1
------------ -------------
Total stockholders'
equity....................... 269.8 226.5
------------ -------------
Total liabilities and
stockholders' equity......... $ 670.2 $ 480.6
============ =============
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-29
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
Net sales............................... $ 278.5 $ 72.0
Operating costs and expenses:
Cost of sales...................... 214.6 55.5
Operating and delivery............. 26.0 6.9
Selling, general and
administrative.................... 18.1 7.2
Depreciation and amortization...... 3.0 .7
--------- ---------
Operating income........................ 16.8 1.7
Other (income) expense:
Interest expense................... 4.8 .4
Other income....................... (.1) (.1)
--------- ---------
Income before income taxes.............. 12.1 1.4
Provision for income taxes.............. 4.9 1.8
--------- ---------
Net income (loss)....................... $ 7.2 $ (.4)
========= =========
Earnings per share...................... $ .21 $ (.03)
========= =========
Earnings per share -- assuming
dilution.............................. $ .21 $ (.03)
========= =========
Number of common shares used in the per
share calculations:
Earnings per share................. 33.8 14.2
========= =========
Earnings per share -- assuming
dilution.......................... 34.5 14.2
========= =========
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-30
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 7.2 $ (.4)
Adjustments to reconcile net
income (loss) to net cash (used
in) provided by
operating activities --
Capital contributions
attributable to deemed
tax payments of S
Corporations............. .3 .9
Provision for bad debts.... .6 --
Depreciation and
amortization............. 3.0 .7
Deferred financing costs
incurred................. (7.0) (.1)
Amortization of deferred
financing costs.......... .1 --
Compensation
expense -- management
shares................... -- 2.8
Changes in operating assets
and liabilities, net of
business acquisitions --
Accounts receivable... (20.9) (3.7)
Inventories........... (2.6) 2.0
Prepaid expenses and
other assets........ (3.8) (1.2)
Accounts payable and
accrued
liabilities......... 7.2 4.9
Income taxes
payable............. 1.2 .7
Other liabilities..... .4 (.6)
Other operating............ (.7) .2
--------- ---------
Net cash (used
in) provided by
operating
activities...... (15.0) 6.2
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.... .3 --
Purchase of property and
equipment...................... (2.9) (1.8)
Purchase of businesses, net of
acquired cash.................. (33.8) --
--------- ---------
Net cash used in
investing
activities...... (36.4) (1.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders... (2.7) (1.0)
Issuance of 8 5/8% Senior
Subordinated Notes............. 200.0 --
Net repayments on the Credit
Facility....................... (93.9) --
Net repayments on Industrial
Revenue Bonds and other
long-term debt................. (47.4) (1.8)
Other financing................. -- .8
--------- ---------
Net cash
provided by
(used in)
financing
activities...... 56.0 (2.0)
--------- ---------
NET INCREASE IN CASH................. 4.6 2.4
CASH, beginning of period............ 7.3 2.4
--------- ---------
CASH, end of period.................. $ 11.9 $ 4.8
========= =========
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-31
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded in
July 1996 to become a leading national value-added metals processor/service
center, to manufacture higher-value components from processed metals and to
pursue aggressively the consolidation of the highly fragmented metals processing
industry. Prior to its IPO, Metals USA had not conducted any operations relating
to the generation of net sales. Concurrent with the consummation of the IPO,
Metals USA acquired, in separate merger transactions, eight companies engaged in
the processing of steel, aluminum and specialty metals, as well as the
manufacture of metal components. Following the IPO and through March 31, 1998,
the Company has acquired numerous additional companies in similar businesses.
(See Note 5). Metals USA, together with its wholly-owned subsidiaries, is
referred to as the "Company."
BASIS OF PRESENTATION
INTERIM FINANCIAL INFORMATION -- The interim consolidated financial
statements included herein are unaudited; however, they include all adjustments
of a normal recurring nature which, in the opinion of management, are necessary
to present fairly the interim consolidated financial information as of and for
the periods indicated. All intercompany transactions and balances have been
eliminated. Accounting measurements at interim dates inherently involves greater
reliance on estimates than at year-end. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year.
The information contained in the following notes to the accompanying
supplemental consolidated financial statements is condensed from that which
would appear in the annual audited financial statements; accordingly, the
financial statements included herein should be reviewed in conjunction with the
Company's audited supplemental consolidated financial statements and related
notes thereto contained elsewhere in this Prospectus. Certain capitalized terms
used herein have the same meaning given to them in the Supplemental Consolidated
Financial Statements.
F-32
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
On May 29, 1998, Metals USA completed the acquisition of all the capital
stock of Krohn Steel Service Center, Inc. ("Krohn") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. Because the acquisition occurred after March 31,
1998, these restated financial statements are labeled as "Supplemental" in
accordance with the rules and regulations of the Securities and Exchange
Commission. The following table summarizes the restated consolidated net sales,
net income and per shared data of the Company after giving effect to the
acquisition of Krohn:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
1998 1997
-------------------- ---------------------
NET
NET INCOME/
NET SALES INCOME NET SALES (LOSS)
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Net sales and net income (loss) --
As previously reported in the
Company's Form 10-Q for the three
months ended March 31, 1998...... $ 270.5 $6.7 $65.1 $ (.7)
Acquisition accounted for as
"pooling-of-interests"......... 8.0 .5 6.9 .3
--------- ------ --------- -------
As restated................... $ 278.5 $7.2 $72.0 $ (.4)
========= ====== ========= =======
Earnings per share --
As previously reported in the
Company's Form 10-Q for the three
months ended March 31, 1998...... $.21 $(.05)
Acquisition accounted for as
"pooling-of-interests"......... -- .02
------ -------
As restated................... $.21 $(.03)
====== =======
Earnings per share -- assuming
dilution --
As previously reported in the
Company's Form 10-Q for the three
months ended March 31, 1998...... $.20 $(.05)
Acquisition accounted for as
"pooling-of-interests"......... .01 .02
------ -------
As restated................... $.21 $(.03)
====== =======
</TABLE>
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
the disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published and (iii) the reported amount of
revenues and expenses recognized during the periods presented. The Company
reviews all significant estimates affecting its consolidated financial
statements on a recurring basis and records the effect of any necessary
adjustments prior to their publication. Adjustments made with respect to the use
of estimates often relate to improved information not previously available.
Uncertainties with respect to such estimates and assumptions are inherent in the
preparation of financial statements. The accompanying consolidated balance
sheets include preliminary allocations of the respective purchase price paid for
the companies acquired using the "purchase" method of accounting and,
accordingly, are subject to final adjustment.
2. EARNINGS PER SHARE
The number of shares of common stock used in the computation of Earnings
per Share excludes the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. The number of shares of common stock used in the computation of Earnings
per Share -- Assuming Dilution reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock. The computations result from dividing income
available to common stockholders by the applicable weighted average number of
common shares outstanding during the period.
Pro forma combined earnings per share were computed assuming all of the
shares issued and outstanding upon completion of the IPO (21,667,023 shares)
were issued and outstanding as of January 1,
F-33
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1997. These shares include shares issued to consultants, members of management
and the former owners of the Founding Companies, together with the shares sold
pursuant to the IPO. Shares issued in connection with the acquisitions are
included in the computation of weighted average shares outstanding only for
those periods subsequent to their respective dates of acquisition, except for
those acquisitions accounted for using the "pooling-of-interests" method, in
which case the shares are reflected in the computation of weighted average
shares outstanding as of the beginning of the earliest period presented.
Earnings per Share for the three months ended March 31, 1997, was computed
using 9,448,313 shares (the aggregate number of shares issued in connection with
the acquisition of entities accounted for using the "pooling-of-interests"
method of accounting) for periods prior to July 3, 1996 (date of inception),
together with the 4,753,414 shares issued in connection with the organization of
Metals USA (which includes shares issued to consultants and management prior to
the IPO). Shares issued to consultants and management prior to the IPO were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. Earnings per Share for the
three months ended March 31, 1998 was computed using the shares issued in
connection with the entities acquired subsequent to December 31, 1997 (all of
which were accounted for using the "purchase" method of accounting) such
shares in the Earnings per Share computation only from their respective dates of
issuance. Earnings per Share -- Assuming Dilution differs from the Earnings per
Share computation due to the potential dilution that could occur if options to
acquire common stock were exercised or converted into common stock.
3. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
Raw materials --
Structural steel................... $ 27.2 $ 8.4
Flat-rolled steel.................. 70.5 44.8
Specialty metals................... 43.5 22.0
Aluminum products.................. 9.6 17.6
Other.............................. .1 1.7
----------- ------------
Total raw materials........... 150.9 94.5
----------- ------------
Work-in-process and finished goods --
Structural steel................... 32.6 35.8
Flat-rolled steel.................. 11.0 19.2
Specialty metals................... 9.5 5.1
Aluminum products.................. 21.2 6.7
----------- ------------
Total work-in-process and
finished goods............. 74.3 66.8
Less -- LIFO reserve.................... (1.9) (1.9)
----------- ------------
Total......................... $ 223.3 $159.4
=========== ============
4. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
8 5/8% Senior Subordinated Notes........ $ 200.0 $--
Borrowings under the Credit Facility.... 50.9 144.8
Various issues of Industrial Revenue
Bonds................................. 21.5 21.6
Obligations under capital leases and
other................................. 10.6 7.9
----------- ------------
283.0 174.3
Less -- Current portion................. (9.8) (7.2)
----------- ------------
$ 273.2 $167.1
=========== ============
F-34
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company entered into an amended and restated five-year revolving credit
facility which provides for borrowings of up to $300.0 on February 11, 1998.
Additionally, on February 11, 1998, the Company completed the sale of $200.0
aggregate principal amount of its 8 5/8% Senior Subordinated Notes due 2008 and
received $194.5 of net cash proceeds (before estimated expenses of $.8)
therefrom. The Company used $179.3 of such proceeds to repay the borrowings
outstanding under the Original Credit Facility and Interim Credit Facility on
February 11, 1998.
The Notes call for semi-annual interest payments on February 15 and August
15 of each year, beginning August 15, 1998 and mature on February 15, 2008. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after February 15, 2003, at redemption rates stated in the indenture
governing the Notes (the "Indenture") together with accrued and unpaid
interest to the date of redemption. Notwithstanding the foregoing, at any time
on or prior to February 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net proceeds
of one or more offerings of the common stock of the Company, at a redemption
price equal to 108.625% of the principal amount thereof, plus accrued and unpaid
interest to the date of such redemption; provided that at least 65% of the
aggregate principal amount of Notes originally issued remains outstanding
immediately after such redemption. The Notes are guaranteed by substantially all
of the Company's current and future subsidiaries, and contain covenants
restricting additional indebtedness, liens, transactions with affiliates, asset
sales, investments and mergers and acquisitions of subsidiares. The Notes are
subordinate to borrowings under the Credit Facility and will rank PARI PASSU in
the right of payment with all other future subordinated debt of the Company and
will rank senior to other indebtedness that expressly provides that it is
subordinated in right of payment to the Notes. The Company filed a registration
statement with the Securities and Exchange Commission on April 9, 1998, under
cover of Form S-4 (the "Exchange Offer Registration Statement") relating to an
exchange offer for the Notes under the Securities Act of 1933, as amended. The
Company has agreed, for the benefit of all holders of the Notes, that it will
use its best efforts to cause the Exchange Offer Registration Statement declared
effective within 150 days after the issuance of the Notes.
The Credit Facility matures on February 11, 2003, bears interest at the
bank's prime rate or LIBOR, at the Company's option, plus an applicable margin
based on the ratio of funded debt to cash flows (as defined). An annual
commitment fee of up to 1/4% is payable on any unused portion of the Credit
Facility. At March 31, 1998, $249.1 was available to the Company under the
Credit Facility. The Credit Facility is used to fund acquisitions, capital
expenditures, refinance debt of the companies acquired and for general working
capital requirements. Under the terms of the Credit Facility, the Company is
required to comply with various affirmative and negative covenants including:
(i) the maintenance of certain financial ratios, (ii) restrictions on additional
indebtedness, (iii) restrictions on liens, guarantees and dividends, (iv)
obtaining the lenders' consent with respect to certain individual acquisitions,
and (v) the maintenance of a specified level of consolidated net worth. In
addition, the Company's Credit Facility and the Indenture include restrictions
on the ability of the Company to pay dividends. Borrowings under the Credit
Facility are secured by the pledge of all of the capital stock of each of the
Company's material subsidiaries (as defined). As of June 15, 1998, the Company
had outstanding borrowings of $103.9 and $196.1 available for use under the
Credit Facility.
5. ACQUISITIONS
During the three months ended March 31, 1998, the Company acquired the
following metal processing companies: Independent Metals Co., Inc.
("Independent"), Pacific Metal Company ("Pacific"), National Manufacturing,
Inc. ("National"), Western Awning Company, Inc. ("Western"), Mark Metals,
Inc. and Metalmart, Inc. (collectively, "Metalmart"), The Levinson Steel
Company ("Levinson"), Concord Metals
F-35
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Corporation ("Concord"), and the assets of Seaboard Steel and Iron Corporation
("Seaboard"). These acquisitions were accounted for using the "purchase"
method of accounting. The aggregate consideration paid by Metals to acquire
these companies was approximately $40.7 in cash and 2,965,812 shares of common
stock (excluding assumed indebtedness of approximately $47.4).
The following summarized unaudited pro forma financial information reflects
the supplemental consolidated financial information of the Company and assumes
the acquisition of the Founding Companies, the Companies acquired through March
31, 1998, and the issuance of the Notes occurred on January 1, 1997. The pro
forma decrease in earnings resulting from the issuance of the Notes was
approximately $.02 per share for both periods presented.
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
(UNAUDITED)
Net Sales............................ $ 323.5 $ 282.1
Operating costs and expenses:
Cost of sales................... 247.0 216.7
Operating and delivery.......... 30.2 27.0
Selling, general and
administrative................ 21.8 18.8
Depreciation and amortization... 3.5 3.6
------------ ------------
Operating income..................... 21.0 16.0
Other (income) expenses:
Interest expense................ 6.7 5.5
Other........................... .3 (.2)
------------ ------------
Income before income taxes...... 14.0 10.7
Provision for income taxes........... 5.7 4.7
------------ ------------
Net income........................... $ 8.3 $ 6.0
============ ============
Earnings per share................... $ .23 $ .17
============ ============
Earnings per share -- assuming
dilution........................... $ .23 $ .17
============ ============
Number of common shares used in the
per share calculations:
Earnings per share.............. 35,646,038 35,646,038
============ ============
Earnings per share -- assuming
dilution...................... 36,358,286 35,671,650
============ ============
The preceding unaudited pro forma amounts reflect the supplemental results
of operations for Metals USA, the Founding Companies and the other acquisitions
completed through March 31, 1998, assuming the transactions were completed on
January 1, 1997. Additionally, the amounts shown in the table reflect (a) the
reduction in certain related party rental and lease expenses which has been
agreed to prospectively; (b) the reduction in salaries, bonuses and benefits to
the owners of the acquired companies which they have agreed to prospectively and
the reversal of the non-cash compensation charge related to the issuance of
common stock to management of and consultants to Metals USA in 1997, partially
offset by a charge for recurring salary expenses of management; (c) the
amortization of goodwill recorded as a result of the acquisition of the
companies acquired over a forty-year estimated life plus additional depreciation
expense due to the allocation of a portion of the excess purchase price to
property and equipment; (d) the assumed reductions in interest expense due to
the refinancing of the outstanding indebtedness in conjunction with the
acquisition of the companies acquired, offset by an assumed increase in interest
expense incurred in connection with financing the acquisitions; (e) the
pre-acquisition results of operations for subsidiares of affiliates of the
Founding Companies which were acquired by the Founding Companies prior to the
related
F-36
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
acquisition by Metals USA, as if those previous acquisitions were completed as
of January 1, 1997; (f) a charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales as a result of the restatement of base year
LIFO costs to the appropriate replacement costs as if the acquisitions occured
on January 1, 1997; (g) certain other nonrecurring expenses with respect to the
companies acquired, such as expenses associated with compensation plans which
were terminated in conjunction with the acquisitions of their repective
companies; (h) the incremental interest expense and amortization of deferred
financing costs incurred as a result of the issuance of the Notes and the Credit
Facility, net of the repayment of outstanding indebtedness of the Company and
(i) the incremental provision for federal and state income taxes for all
entities being combined.
6. SUPPLEMENTAL INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
Supplemental cash flow information:
Cash paid for interest............. $ 2.6 $ .4
Cash paid for income taxes......... 2.8 .2
Non-cash investing and financing
activities:
Purchase of businesses for stock... 38.6 --
COMPENSATION CHARGE
During the three months ended March 31, 1997, the Company sold an aggregate
of 309,500 shares of common stock to management and consultants to the Company
for $0.01 per share. As a result, the Company recorded a non-recurring, non-cash
compensation charge of $2.8 representing the difference between the amount paid
for the shares and the estimated fair value of the shares on the date of sale,
as if the Founding Companies were combined.
7. COMMITMENTS AND CONTINGENCIES
Subsidiaries of the Company are involved in a variety of claims, lawsuits
and other disputes arising in the ordinary course of business. The Company
believes the resolution of these matters and the incurrence of their related
costs and expenses should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
8. SUBSEQUENT EVENTS
On March 23, 1998, the Company announced that it agreed to make an offer
for all of the issued and outstanding common shares of Ideal Metal Inc.
("Ideal") at a cash price of CAN$5.25 per share. Another company made a
competing offer and on April 28, 1998, the Company received the agreed
compensatory fee of U.S.$1.7 (CAN$2.5) as a result of the competing offer.
Subsequent to March 31, 1998, the Company acquired the following metal
processing companies: Industrial Metals, Inc. ("Industrial"), Sierra Pacific
Steel, Inc. ("Sierra"), Fullerton Industries, Inc. ("Fullerton"), Faitoute
Steel Company, Inc. ("Faitoute"), Steel Manufacturing and Warehouse Company
("Steel Manufacturing"), Wilkof-Morris Steel Corporation ("Wilkof"), Forest
Manufacturing, Inc. ("Forest"), LaserPro Inc. ("LaserPro"), Aluminum
Building Systems, Inc. ("ABS"), Valley Aluminum Co. ("Valley"), Flagg Steel
Co. ("Flagg"), GSBC, Inc. (dba Geneva Steel Blanking) ("Geneva"),
Professional Metals, Inc. ("Professional") and Intsel Southwest Limited
Partnership ("Intsel"). These acquisitions were accounted for using the
"purchase" method of accounting. In addition, the Company
F-37
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
completed the acquisition of Krohn Steel Service Center, Inc. ("Krohn"), which
was accounted for using the "pooling-of-interests" method of accounting. The
aggregate consideration paid by the Company to acquire these companies was
approximately $151.2 in cash, 3,480,950 shares of common stock and the issuance
of notes of approximately $3.7 (excluding assumed indebtedness of approximately
$43.4).
On April 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission under cover of Form S-1 (the "1998 Shelf
Registration Statement") relating to the issuance of up to 10,000,000 shares of
common stock to be issued in connection with future acquisitions.
On May 20, 1998, the Company's stockholders approved an increase in the
number of authorized shares of Common Stock to 200,000,000.
F-38
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PAGE
-----
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Disclosure Regarding Forward Looking
Statements................................... 3
Prospectus Summary............................. 4
Risk Factors................................... 8
Selected Financial Data........................ 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 14
Legal Matters.................................. 21
Experts........................................ 21
Index to Financial Statements.................. F-1
------------------
10,000,000 SHARES
[LOGO]
METALS USA, INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.
The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
The Company has purchased liability insurance policies covering directors
and officers in certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The exhibits listed below are filed as exhibits to this Registration
Statement and are filed herewith or are incorporated by reference as
indicated below:
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
3.1 -- Amended and Restated Certificate of
Incorporation of Metals USA, Inc.
(the "Company"), as amended,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.
3.2 -- Bylaws of the Company, as amended,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
II-1
<PAGE>
4.1 -- Form of certificate evidencing
ownership of Common Stock of the
Company, incorporated by reference to
the Company's registration statement
on Form S-1, Registration No.
333-26601 dated July 9, 1997.
4.2 -- Indenture, dated February 11, 1998,
by and among the Company as issuer
and the Guarantors named therein, and
U.S. Trust Company of California,
N.A., as Trustee regarding the
Company's 8 5/8% Senior Subordinated
Notes due 2008, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-35575 dated
February 20, 1998.
4.3 -- Purchase Agreement dated February 6,
1998 by and among the Company and BT
Alex. Brown Incorporated, Bear
Stearns & Co., Inc., Donaldson,
Lufkin & Jenrette Securities
Corporation and NationsBanc
Montgomery Securities LLC regarding
the Company's 8 5/8% Senior
Subordinated Notes due 2008,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.
4.4 -- Registration Rights agreement dated
February 6, 1998 by and among the
Company and BT Alex. Brown
Incorporated, Bear Stearns & Co.,
Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and
NationsBanc Montgomery Securities LLC
regarding the Company's 8 5/8% Senior
Subordinated Notes due 2008,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.
5.1++ -- Opinion of Bracewell & Patterson,
L.L.P.
10.1 -- The Company's 1997 Long-Term
Incentive Plan, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.2 -- The Company's 1997 Non-Employee
Directors' Stock Plan, incorporated
by reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.3 -- Agreement and Plan of Organization
dated as of April 30, 1997, by and
among the Company, Affiliated Metals
Acquisition Corp., Affiliated Metals
Company and the Stockholders named
therein, incorporated by reference to
the Company's registration statement
on Form S-1, Registration No.
333-26601 dated May 7, 1997.
10.4 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Interstate Steel I
Acquisition Corp., Interstate Steel
II Acquisition Corp., Interstate
Steel III Acquisition Corp.,
Interstate Steel IV Acquisition
Corp., Interstate Steel Supply
Company, Interstate Steel Supply
Company of Pittsburgh, Interstate
Steel Supply Company of Maryland,
Interstate Steel Processing Company
and the Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.5 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Queensboro Steel I
Acquisition Corp., Queensboro Steel
Corporation and the Stockholders
named therein, incorporated by
reference to the Company's regis-
tration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.6 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Southern Alloy
Acquisition Corp., Southern Alloy of
America, Inc. and the Stockholders
named therein, incorporated by
reference to the Company's regis-
tration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
10.7 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Steel Service
Systems Acquisition Corp., Steel
Service Systems, Inc. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.8 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Texas Aluminum I
Acquisition Corp., Texas Aluminum II
Acquisition Corp., Texas Aluminum III
Acquisition Corp., Texas Aluminum IV
Acquisition Corp., Texas Aluminum V
Acquisition Corp., Texas Aluminum
Industries, Inc., Cornerstone Metals
Corporation, Cornerstone Building
Products, Inc., Cornerstone Aluminum
Company, Inc., Cornerstone Patio
Concepts, L.L.C. and the Stockholders
named therein, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated May
7, 1997.
II-2
<PAGE>
10.9 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Uni-Steel
Acquisition Corp., Uni-Steel, Inc.
and the Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.10 -- Agreement and Plan of Organization
dated as of April 30, 1997 by and
among the Company, Williams Steel
Acquisition Corp., Williams Steel &
Supply Co., Inc., and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated May 7, 1997.
10.11 -- Form of Employment Agreement between
the Company and Arthur L. French,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.12 -- Form of Employment Agreement between
the Company and J. Michael Kirksey,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.13 -- Form of Employment Agreement between
the Company and Stephen R. Baur,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.14 -- Form of Employment Agreement between
the Company and John A. Hageman,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.15 -- Form of Employment Agreement between
the Company and Terry L. Freeman,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.16 -- Form of Employment Agreement between
the Company and Keith E. St. Clair,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.17 -- Form of Founders' Employment
Agreement between Interstate Steel
Supply Company of Maryland and
Interstate Steel Processing Company
and Arnold W. Bradburd, incorporated
by reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated June
17, 1997.
10.18 -- Form of Founders' Employment
Agreement between Steel Service
Systems, Inc. and Craig R. Doveala,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.
10.19 -- Form of Founders' Employment
Agreement between Southern Alloy of
America, Inc. and William Bartley
Edge, incorporated by reference to
the Company's registration statement
on Form S-1, Registration No.
333-26601 dated June 17, 1997.
10.20 -- Form of Founders' Employment
Agreement between Queensboro Steel
Corporation and Mark Alper,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.
10.21 -- Form of Founders' Employment
Agreement between Uni-Steel, Inc. and
Richard A. Singer, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated June
17, 1997.
10.22 -- Form of Founders' Employment
Agreement between Williams Steel &
Supply Co., Inc. and Lester G.
Peterson, incorporated by reference
to the Company's registration
statement on Form S-1, Registration
No. 333-26601 dated June 17, 1997.
10.23 -- Form of Founders' Employment
Agreement between Texas Aluminum
Industries, Inc., Cornerstone Metals
Corporation, Cornerstone Building
Products, Inc., Cornerstone Aluminum
Company, Inc., Cornerstone Patio
Concepts, L.L.C. and Michael E.
Christopher, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated June
17, 1997.
10.24 -- Form of Founders' Employment
Agreement between Affiliated Metals
Company and Patrick A. Notestine,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated June 17, 1997.
10.25 -- Form of Agreement among certain
stockholders, incorporated by
reference to the Company's
registration statement on Form S-1,
Registration No. 333-26601 dated July
9, 1997.
II-3
<PAGE>
10.26 -- Indemnity Agreement with Notre
Capital Ventures II, L.L.C.,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.27 -- Agreement and Plan of Merger dated
September 26, 1997, by and among the
Company, HTL Acquisition Corp.,
Harvey Titanium, Ltd. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated November 14, 1997.
10.28 -- Agreement dated September 26, 1997,
by and among the Company, Meier Metal
Servicenters, Inc. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated November 14, 1997.
10.29 -- Agreement dated September 26, 1997,
by and among the Company, Jeffreys
Steel Company, Inc. and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated November 14, 1997.
10.30 -- Form of Employment Agreement between
Jeffreys Steel Company, Inc. and Leon
Jeffreys, incorporated by reference
to the Company's registration
statement on Form S-1, Registration
No. 333-35575 dated February 20,
1998.
10.31 -- Agreement and Plan of Merger dated
December 17, 1997, by and among the
Company, IM Acquisition Corp.,
Independent Metals Co. Inc., and the
Stockholders named therein,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.
10.32 -- Amended and Restated Credit Agreement
dated February 11, 1998, by and among
the Company and The First National
Bank of Chicago, as agent,
incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 333-35575
dated February 20, 1998.
10.33 -- Agreement and Plan of Merger dated as
of February 16, 1998, by and among
the Company, PMC Acquisition Corp.,
Pacific Metal Company and the
Stockholders named therein,
incorporated by reference to the
Company's Form 8-K dated March 16,
1998.
10.34 -- Agreement and Plan of Merger dated
June 24, 1998, by and among Metals
USA, Inc., Philip Metals (USA) Inc.,
Philip Services Corp. and Philip
Enterprises Inc., incorporated by
reference to the Company's Form 8-K
dated July 7, 1998.
21.1+ -- List of subsidiaries of the Company
23.1+ -- Consent of Arthur Andersen LLP
23.2+ -- Consent of Ernst & Young LLP
23.3+ -- Consent of McGladrey & Pullen, LLP
23.4+ -- Consent of Rubin, Brown, Gornstein &
Co.
23.5+ -- Consent of Klein, Bogakos and
Robertson, CPA's Inc.
23.6++ -- Consent of Bracewell & Patterson,
L.L.P. (included in Exhibit 5.1)
23.7+ -- Consent of Ernst & Young LLP
23.8+ -- Consent of Perkins & Company, P.C.
23.9+ -- Consent of Arthur Andersen LLP
23.10+ -- Consent of Arthur Andersen LLP
24.1 -- Form of Power of Attorney
- ------------
+ Included with this filing.
++ Previously filed.
II-4
<PAGE>
(b) Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements, and therefore have been omitted.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b), if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in
this Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
II-5
<PAGE>
(6) That every prospectus (i) that is filed pursuant to the immediately
preceding paragraph, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Metals USA,
Inc. has duly caused this Registration Statement or amendment thereto to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on July 21, 1998.
METALS USA, INC.
By: /s/ ARTHUR L. FRENCH
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON JULY 21, 1998.
SIGNATURE TITLE
- ------------------------------------------------------------------------------
MARK ALPER* Vice President -- Development and
Director
ARNOLD W. BRADBURD* Vice Chairman of the Board
MICHAEL E. CHRISTOPHER* Senior Vice President and Director
CRAIG R. DOVEALA* Director
WILLIAM B. EDGE* Senior Vice President and Director,
/s/TERRY L. FREEMAN Vice President, Corporate Controller
TERRY L. FREEMAN and Chief Accounting Officer
/s/ARTHUR L. FRENCH Chairman of the Board, Chief
ARTHUR L. FRENCH Executive Officer and President
STEVEN S. HARTER* Director
A. LEON JEFFREYS* Director
J. MICHAEL KIRKSEY* Senior Vice President, Chief
Financial Officer and Director
TOMMY E. KNIGHT* Director
RICHARD H. KRISTINIK* Director
PATRICK S. NOTESTINE* Director
LESTER G. PETERSON* Director
T. WILLIAM PORTER* Director
TOM SHAPIRO* Senior Vice President and Director
RICHARD A. SINGER* Senior Vice President and Director
*By:/s/ARTHUR L. FRENCH
ARTHUR L. FRENCH
ATTORNEY-IN-FACT
II-7
EXHIBIT 21.1
METALS USA, INC.
SUBSIDIARY LIST
Affiliated Metals Company
Aluminum Building Systems, Inc.
Concord Metals Corporation
Faitoute Steel Company
Federal Bronze Alloys Inc.
Flagg Steel Co.
Forest Manufacturing, Inc.
Fullerton Industries, Inc.
GSBC, Inc. (dba Geneva Steel Blanking)
Harvey Titanium, Ltd.
Industrial Metals, Inc.
Independent Metals Co., Inc.
Interstate Steel Supply Company
Interstate Steel Supply Company of Pittsburg
Interstate Steel Supply Company of Maryland
Interstate Steel Processing Company
Intsel Southwest Limited Partnership
Jeffreys Steel Company, Inc.
Jeffreys Real Estate Corp.
Krohn Steel Service Center, Inc.
LaserPro Inc.
The Levinson Steel Company
Mark Metals, Inc.
Meier Metal Servicenters, Inc.
Metalmart, Inc.
Metals USA Management Co., L.P.
MUSA GP, Inc.
MUSA LP, Inc.
Metals USA Services Corporation
Metals USA Finance Corp.
National Manufacturing, Inc.
Pacific Metal Company
Professional Metals, Inc.
Queensboro Steel Corporation
Royal Aluminum, Inc.
R.J. Fabricating, Inc.
Sierra Pacific Steel, Inc.
Southern Alloy of America, Inc.
Steel Manufacturing and Warehouse Company
Steel Service Systems, Inc.
Texas Aluminum Industries, Inc.
Cornerstone Metals Corporation
Cornerstone Building Products, Inc.
Cornerstone Aluminum Company, Inc.
Cornerstone Patio Concepts, L.L.C.
Uni-Steel, Inc.
Valley Aluminum Co.
Wayne Steel, Inc.
Western Awning Company, Inc.
Wilkof-Morris Steel Corporation
Williams Steel & Supply Co., Inc.
WSS Transportation, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
July 21, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Post-Effective Amendment No. 1 to the Registration Statement (Form S-1 on
Form S-4 No. 333-50449) and related Prospectus of Metals USA, Inc. for the
registration of 10 million shares of Metals USA, Inc.'s common stock and to the
incorporation by reference therein of our report dated October 4, 1996, with
respect to the financial statements of Affiliated Metals Company as of August
31, 1996 and for the fifty-two weeks then ended included in Amendment No. 1 to
the Registration Statement (Form S-4 No. 333-49823) for the registration of $200
million of Metal USA Inc.'s 8 5/8% Senior Subordinated Notes due 2008.
ERNST & YOUNG LLP
St. Louis, Missouri
July 17, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Post Effective Amendment No. 1 to the
Registration Statement (Form S-1 on Form S-4 No. 333-50449) of our report, dated
February 25, 1997, except for Note 11 as to which the date is April 18, 1997 and
Note 12 as to which the date is July 11, 1997, relating to the financial
statements of Queensboro Steel Corporation. We also consent to the reference to
our Firm under the caption "Experts" in the Prospectus.
McGLADREY & PULLEN, LLP
Wilmington, North Carolina
July 17, 1998
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Post Effective Amendment No. 1 to the
Registration Statement on Form S-1 on Form S-4 of Metals USA, Inc. of our
report, dated October 19, 1995 on Affiliated Metals Company for the years ended
September 3, 1994 and September 2, 1995, and to the reference to us under the
heading "Independent Auditors" in the Prospectus which is a part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus which is a part of this Registration Statement.
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis, Missouri
July 17, 1998
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Post Effective Amendment No. 1 to the
Registration Statement (Form S-1 on Form S-4 No. 333-50449) of our report, dated
September 23, 1997, relating to the financial statements of Harvey Titanium,
Ltd. We also consent to the reference to our Firm under the caption "Experts"
in the Prospectus.
KLEIN, BOGAKOS AND ROBERTSON, CPA'S INC.
Santa Monica, California
July 17, 1998
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated January 23, 1998, except for Note 10 for which
the date is April 17, 1998, with respect to the consolidated financial
statements of Fullerton Industries, Inc., in Post Effective Amendment No. 1 to
the Registration Statement on Form S-1 (No. 333-50449) and related Prospectus
filed on Form S-4 of Metals USA, Inc. for the registration of 10,000,000 shares
of Metals USA, Inc. common stock.
ERNST & YOUNG LLP
Chicago, Illinois
July 17, 1998
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Metals USA, Inc. on
Form S-4 of our report dated February 11, 1998, on the consolidated financial
statements of Pacific Metal Company and Subsidiary as of December 31, 1997 and
1996 and for the years ended December 31, 1997 and 1996 appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
PERKINS & COMPANY, P.C.
Portland, Oregon
July 17, 1998
EXHIBIT 23.9
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
July 17, 1998
EXHIBIT 23.10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 4, 1998 (except with respect to the matter discussed in Note
8, as to which the date is March 11, 1998), with respect to the financial
statements of The Levinson Steel Company (and to all references to our Firm)
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 17, 1998
